Justin Onuekwusi, chief investment officer at wealth manager St James’s Place, looks ahead to the US elections and shares his insights on asset allocation.

Globally, more voters than ever in history headed to the polls this year, with over 60 elections representing about half of the world’s population. Whilst elections can fuel short-term emotional behavior, Justin Onuekwusi at St James’s Place takes a medium-term view, focusing on fundamentals.

Onuekwusi believes that the US election with Donald Trump representing the Republicans and Kamala Harris representing the Democrats on November 5 will be a close call.

So far, the potential large borrowing requirement of both Harris and Trump does not appear to be of significant concern to financial markets. However, Onuekwusi believes that it could store up potential future volatility for US government bonds.

“The results could also have far-reaching implications for industries sensitive to regulation,” he added.

Swing states 
The result of the US election hangs in a delicate balance and is expected to be decided by seven key swing states: Arizona, Georgia, Michigan, Pennsylvania, Wisconsin, Nevada, and North Carolina. These states are critical because they hold significant electoral votes and are highly competitive. As of mid-October, polling data shows a tight race – one too close to call. This can create heightened market uncertainty.  

Demographics matter 
In Onuekwusi’s view, the Democrats need to energize younger voters, ethnic minorities, and women, particularly in suburban areas, while emphasizing issues such as economic equality, healthcare, and social inclusion. 

Meanwhile, it appears that the Republicans must appeal to white non-college voters, maintain their rural strongholds, and make gains among Hispanic and working-class voters.  

“Both parties will need to sway moderate and independent voters in key swing states, as these groups are likely to determine the outcome in closely-contested areas,” he said.  

Congress 
“The US election is more than just a presidential race. The balance of power within the US Congress affects the ability of any new government to enact change,” Onuekwusi added. 

A split Congress, as we’ve seen over the past few years, may limit sweeping policy changes, reducing the scope of regulatory shifts. However, unified control of the White House and Congress by one party could lead to significant legislative changes, particularly in areas such as fiscal policy, infrastructure spending, and environmental regulation.

“A split Congress often adds to uncertainty of US policy actions, so can also serve to unsettle markets, at least temporarily. This may be particularly true of this election, where anticipation has grown over whether a definitive outcome will be had – or even agreed in 2024,” he said.

"Historical patterns shown by the black line (see above) suggest stock markets typically experience a decline leading up to elections. This is followed by a sharp recovery in the final week as uncertainty diminishes and the outcome becomes more predictable," Onuekwusi said.

Why is this important?
Across US presidential elections the politics of the winner has had less bearing on market response than how close and contentious the election was. This is based on daily stock market performance analysis of the past 15 elections since 1964.

“Historical patterns shown by the black line suggest stock markets typically experience a decline leading up to elections. This is followed by a sharp recovery in the final week as uncertainty diminishes and the outcome becomes more predictable,” Onuekwusi continued.

After the election, the analysis shows that markets are generally calm, although interestingly close results often trigger rallies. While there is room to debate the reliability of these trends as predictors, what’s clear is that market behavior can be notably more volatile during closely contested elections, reflecting the heightened uncertainty among investors. 

Turning the page November to January
“It’s crucial to recognize the 2024 election results will have far-reaching consequences beyond November, particularly in the lead up to January’s inauguration and the first 100 days of the new administration,” Onuekwusi said.

Investors will closely monitor policy shifts, as the first 100 days will be critical in shaping the market landscape and setting the tone for economic growth, inflation management, and sector performance for the coming years. Whether it’s a Harris or Trump presidency, markets will react swiftly to the policy direction set during this period. 

“A Harris-led administration is expected to prioritize social inclusion, climate action, and economic equity. This could boost sectors like green energy but may increase regulation on fossil fuel and technology companies,” he continued. 

“In contrast, a Trump presidency would likely focus on deregulation, higher tariffs on foreign goods, tax cuts, and policies favoring traditional energy sectors, potentially boosting short-term market confidence but raising concerns over geopolitical stability and fiscal discipline,” he added.

“As the world’s largest economy, the US plays a central role in global markets. Shifts in leadership or policy can impact everything from economic growth and inflation to fiscal and monetary policy to international trade and foreign relations,” Onuekwusi said.

Navigating the market during the election year 
In the run up to political events, investors need to be wary of forecasting results but prepare their portfolios for any unintended risks.  

As always, Onuekwusi’s approach is to manage risk and think in terms of scenarios and probabilities rather than speculate on one specific outcome. Still, he remains aware of the fact that the bond market is particularly vulnerable at the moment given the debt and deficit trajectories of US public finances.  

Rising deficits and potential fiscal challenges, exacerbated by either candidate’s fiscal policies, will place the bond market under scrutiny. To contextualize these shorter-term risks with our longer-term views, he tends to look to valuations. 

Whether it’s trade policy, defense spending, or foreign relations, the next US administration’s decisions will have global ramifications. Yet, as always, Onuekwus advocates a medium-term focus, not short-term speculation.

Attention must be drawn to the dominance of consensus trades in the market. He learnt in the early August market sell-off that this can lead to fragility. The surge in volatility at that time helped reduce some of the excesses. Still, certain risks remain as not all of the speculative build-up has been cleared.  

“Global investors remain heavily exposed to popular trades, such as large cap technology stocks, high-yielding currencies and large-cap equities. It is recognized that when too many market participants are on the same side of a trade, there is a need to question whether value remains or if the trade has become overcrowded. This could lead to greater volatility as we get closer to the election,” Onuekwusi said.

He highlighted how news and world events can provoke short-term emotional reactions and market volatility, but his investment philosophy remains focused on fundamentals, not noise. He will act if asset class returns shift significantly, but his guiding principles of diversification, risk management, and behavioral discipline will continue to shape his approach.

US equities
Onuekwusi remains underweight in US equities and continues to evaluate the potential risks posed by the market. “This is not a result of the US political situation but rather a consequence of its reach. The growing size of many US-listed companies, namely the trillion-dollar technology companies, means that today the US makes up some 70 per cent of the global equity market. We remain alert to the concentration risk this could present,” he added.