DON’T bet against America: HAMISH McRAE says investors should not lose confidence in the world’s largest economy

Cross your fingers that American voters will at least make a clear choice for their president – ​​whatever that choice may be.

If they don’t, it will be a bumpy ride, not just for global politics, but for all of us as investors in the world’s dominant economy. All of us? Yes absolutely, because we are all affected in some way by what will happen there.

Many Britons will be direct investors, with the lucky ones owning some shares in high-tech giants such as Apple, Microsoft and Amazon, which have grown enormously in recent years.

Anyone with a private sector pension will have some assets in the US.

The US market accounts for 60 percent of global equities and any balanced portfolio will own some shares there.

In addition, the dollar anchors world trade and investments.

If inflation is also better controlled, this would help keep bond yields low.

U.S. Treasury bonds – debt securities issued by the U.S. government – ​​are the main asset held as reserves at the world’s central banks.

And of course, the US is not only the largest economy in the world, far behind China, but is also increasing its lead over Europe.

So what will happen? There is no point in trying to predict the outcome or consult opinion polls; the fog hanging over the elections is impenetrable. The message from the financial markets is also confused.

On balance, the bets are in favor of a Trump victory, but they were wrong in 2016 when he was the underdog. The money then went to Hillary Clinton.

Conversely, a strong stock market — the S&P 500 is up 10 percent since August — has historically signaled that the incumbent party would win the presidency. Conventional wisdom is that markets like continuity.

But the current view is that a Trump victory would be better for stocks and worse for bonds, while a Harris presidency would be the opposite.

The argument is that Republicans would be more pro-business than Democrats, and that the tax cuts they have promised would boost economic growth and corporate profits at least in the short term.

The downside would be higher inflation, which would lead to higher interest rates. The emphasis among Democrats would be on stimulating government spending.

Whichever of the two enters the White House, the federal budget deficit will rise and that is a major concern. But under the Democrats the rate would rise slightly less.

The idea that Trump would be good for stocks and Harris for bonds is nice, but I would be suspicious of it for two reasons.

The first is that it is too neat. The thousands of smart analysts on Wall Street are great at coming up with arguments that seem to explain what is happening to the markets.

But if you look back at their track record of predicting, rather than explaining, even the best are right only about half the time.

The second reason for caution is that there may not be a clear outcome this week. This should certainly be the biggest concern for all of us. Chaos is rarely good for investors. If that were to happen, there would eventually be a settlement.

The quote attributed to Winston Churchill that “Americans can always be trusted to do the right thing once all other options have been exhausted” would hold true.

But a few weeks of uncertainty would undermine the status of both the dollar and U.S. assets as the best safe haven for global savings. There could very well be a sharp bear market for equities and a rise in bond yields.

There is another dimension: global politics. In the absence of a clear election outcome, this would create an opportunity to test the American response to some offensive against American interests.

There’s no point in speculating about what that might be. At the same time, it would be foolish not to be aware that global financial confidence is already quite fragile.

Witness the record price of the ultimate safe haven in troubled lines, that of gold. It traded just below $2,750 an ounce last night, close to an all-time high, and up nearly 40 percent from a year ago.

Turmoil could occur in the bond markets regardless of who is declared the winner, but this is much more likely to happen if the profit margin turns out to be very small.

Given all these uncertainties, how do you explain something else: US stocks hitting record highs last month? There are two possible answers to this, one positive and one negative.

The positive answer is that there is a global belief that whatever happens to American politics, the economy will continue to prosper.

The inventiveness, drive, scale, flexibility and energy of American companies will together ensure that they continue to dominate the world. The American economy is bigger than politics – and better too.

The negative answer is another question: where else do you put your money? Do you really want to invest your savings in China? Europe will not deliver much growth in the coming years, even if some companies will do well.

Here in Britain it would be nice to expect better economic performance, but last week’s Budget has put a dampener on that.

Emerging economies will play a greater role in the global economy over the next twenty years, but returns for investors have been very disappointing recently.

You see the point. There are good reasons for investors to be concerned about the US: stocks may be overvalued and bond markets will face real uncertainty.

But as American investment guru Warren Buffett wrote in his 2022 shareholder letter: ‘In the short 232 years of its existence, there has been no breeding ground for unleashing human potential like America.

Despite some serious disruptions, our country’s economic progress has been breathtaking. Our unwavering conclusion: never bet against America.”