We do not expect a likely (according to polls and betting markets) Democratic victory in the House to result in significant policy changes.
The scope for major legislation appears limited and markets are generally comfortable with some degree of political stalemate, as long as it reduces political uncertainty.
Budget negotiations would likely require compromises on health and social spending rather than further tax cuts.
The closer Democrats get to 60 votes in the Senate, the more negotiating power they will wield.
We are more concerned that if the Democrats fail to take votes away from the Republicans – and polls have recently proven to be unreliable indicators – it would make us question their ability to successfully campaign for the presidential elections in two years' time.
Therefore, this may prove more relevant to markets than the immediate political implications.
In our view, markets are currently in the eye of the storm.
Financial conditions have tightened due to rising bond yields and high energy prices, but corporate earnings remain resilient enough to support risk assets.
Our baseline scenario is that markets overcome the impact of the election relatively quickly and return to focusing on growth, inflation and earnings.
The key question for investors is whether nominal economic growth can continue to outpace borrowing costs as we approach 2027.
The biggest risks are a new rise in inflation expectations, higher bond yields or a deterioration in earnings momentum.
Technology remains the most important sector to keep an eye on.
The US administration has consistently supported investment in AI and maintenance of US technological leadership, which remains a powerful structural tailwind.
The healthcare sector is another area where the outcome of elections can influence sentiment, given its long-standing role as a political battleground.
However, in the absence of significant political changes, we believe the current market leadership is driven more by earnings results than political developments.
We do not orient portfolios according to a specific electoral outcome, but we manage risk.
The main drivers of the markets remain profits, the profitability of AI-related investments and competition for capital, as government bond yields are no longer zero.
We have slightly reduced exposure to emerging market equities, partly to manage AI-related concentration risk.
We also recognize that the dollar's recent strength appears to stem more from weakness in other economies, particularly Europe, than from a change in the underlying growth dynamic of the United States.
The election outcome is unlikely to substantially change the general direction of deregulation, fiscal support and strategic investment policies.
A Democratic victory in one or both chambers could lead to a greater emphasis on health care and social spending during future budget negotiations, but not a radical change in policies.
For global investors, a certain degree of legislative gridlock could actually be viewed as a positive, as it limits the possibility of big policy surprises.
In this context, attention will likely remain focused on the actions of the executive branch rather than on the legislative activity of Congress.
Looking beyond the election, we expect equity markets to continue to be supported by earnings and the residual effects of fiscal stimulus, even if these tailwinds are set to fade over the course of 2027.
We are more cautious on government bonds.
As inflation becomes entrenched in expectations, bond investors may become less inclined to fully accept the thesis that AI-driven productivity gains will provide a significant disinflationary counterpart.
