• First, our survey results, which are bottom-up in nature and driven by domestic policy views, imply that the event is relevant to US equity markets, but perhaps less so than some market participants may believe. For our US analysts, a Republican sweep was seen as the most bullish outcome, while a Democratic sweep was seen as the most bearish outcome, but the key thing to note is that the tilts were extremely mild.
• Second, some of the traditional Trump trades continue to emerge in policy assessments and sector views. Among our US analysts, Energy and Financials had some of the most bullish tilts in a Republican sweep scenario, and some of the most bearish tilts in a Democratic sweep scenario.
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If you’d like to hear more, here’s another 5 minutes. Now, let’s jump into the details.
• Starting With Takeaway #1: our survey results, which are bottom-up in nature and driven by domestic policy views, imply that the event is relevant to US equity markets, but perhaps less so than some market participants may believe.
o Globally, 51% of our teams said the event is relevant, but most of those said the event was relevant as opposed to highly relevant. The event is seen as most relevant in the US and least relevant in Australia, with a neutral view on relevancy in Canada and Europe. Even in the US, the relevancy score was weak, coming in at 0.7 on average. In our scoring system, +2 is very relevant, +1 is relevant, 0 is neutral, -1 is irrelevant, and -2 is very irrelevant.
o On our scenario analysis, we think the key thing to focus on is the views of our US analysts. They have a slightly bullish bias in a Republican sweep or Trump win/split Congress, though it’s worth noting that once again the tilts were modest, coming in at +0.38 for the Republican sweep scenario and +0.22 in a Trump win/split Congress scenario. In our scoring system, +2 is very bullish, +1 is bullish, 0 is neutral, -1 is bearish, and -2 is very bearish.
o Overall, our US analysts were less constructive under the two Harris win scenarios than they were under the two Trump win scenarios, but the signals were once again mild. In a Democratic sweep scenario, the overall outlook implications score came in at -0.24. In a Harris win/split Congress scenario, the overall outlook implications score came in at -0.04, right at neutral
• Moving on to Takeaway #2: some of the traditional Trump trades continue to emerge in policy assessments.
o Within the Republican sweep scenario, sector tilts on the outlook implications scores were most bullish for Energy and Financials. Within the Trump win/split Congress scenario, these two sectors also had the most constructive tilts, along with Utilities.
o Within the Democratic sweep scenario, sector tilts on outlook implications were most bearish for Energy and Financials. Within the Harris win/split Congress scenario, most outlook implication scores at the sector level were neutral.
o When we asked our analysts about what policies they were focused on, regulation, corporate taxes, tariffs/trade, and the Inflation Reduction Act and other fiscal stimulus packages were the most popular topics, along with Energy / Climate / EVs also came up frequently.
o Our conversations with our analysts on policy reminded us that there are a number of distinct issues in focus for the investment community in this election, with complex and sometimes conflicting crosscurrents.
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o We’ve been highlighting in recent meetings how the US equity market tends to pullback a bit right before election day and rally back after.
o Longer-term, we’ve also been reminding investors that the US equity market tends to rise regardless of the balance of power in Washington, with the two best scenarios over time having been when Republicans control everything and Democratic President with a split Congress.
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o And as noted on our survey, while the US scenario analysis has some tilts at the broader market level, those tilts are mild and relevancy for the broader market in the US is also mild.
o Discussing policy views with our analysts also reinforces to us that it is simply very difficult for stock market participants to accurately assess potential impacts of a lot of the policy ideas that are being discussed until the legislative process plays out and important details are determined.
o Waiting and seeing is often hard for equity investors, but we think that’s good advice right now.
That’s all for now. Thanks for listening, and be sure to reach out to your RBC representative with any questions.
