US Strategy – Asset Allocation and US Elections

US Strategy and Asset Allocation structured into key sections before the US election of November 5 2024

  1. Macro and Profits

    • Corporate Leverage: At a 5-year low, while US government debt is at its highest since World War II.

    • Federal Reserve and Rate Cuts: Fed rate cuts could lead to a boom, with the possibility of cyclical data rising significantly.

    • Yield Curve: Historically, the yield curve steepens during rate cuts, favoring consumer cyclicals and long curve steepener trades.

  2. Equity Market Valuations

    • S&P 500 Outlook: A strong profit cycle is expected, with a 12% EPS growth forecast for 2024 and 11% for 2025.

    • S&P 500 Valuation: Current valuations suggest the S&P 500 could be undervalued by 15%.

    • Sector Rotation: Profit growth is expected to shift from the Nasdaq-100 into the broader S&P 500.

  3. Fed and Monetary Policy

    • Rate Cut Implications: Fed rate cuts historically lead to better performance in equal-weighted indices versus market-cap-weighted indices like the S&P 500.

    • Sector Leadership: Financials and Industrials expected to lead, with a focus on long curve steepener trades.

    • Consumer Discretionary Stocks: With mortgage rates dropping, consumer discretionary stocks could outperform.

  4. US Elections and Politics

    • Election Scenarios: The US elections could result in different fiscal outcomes depending on whether Trump or Harris wins. Fiscal policy, taxes, and tariffs will be key differentiators between the candidates.

    • Tax Policy: Extending Trump’s tax cuts could add significantly to the deficit, while Harris is likely to maintain or selectively extend certain cuts.

    • Fiscal Policy Impact: Fiscal policy under Trump or Harris could shift focus between corporate tax rates, infrastructure spending, and reshoring policies.

  5. Sector Recommendations

    • Overweight Sectors: Industrials, Financials, and Technology.

    • Underweight Sectors: Energy due to high OPEC spare capacity.

    • Global Nuclear Investments: Nuclear energy demand is expected to rise, driven by data center electricity consumption.

  6. Global Reshoring and Thematic Investments

    • Reshoring Investments: Job creation and manufacturing spending in the US have reached new highs. Reshoring-related stocks are outperforming the broader market.

    • Preferred Trades: US small caps, financials, and energy capex are recommended under a Trump victory scenario, while clean energy and large-cap equities are favored under Harris.

  7. Gold and Commodities

    • Gold Performance: The relationship between US public debt and inflation-adjusted gold prices has strengthened, making gold a strong long-term investment.

    • Global Central Banks: Central bank gold purchases are expected to remain a bullish factor for gold prices, driven by concerns over US-centric global financial systems.