Given the current backdrop marked by political turmoil and the upcoming U.S. elections, Wells Fargo strategists believe investors should keep their focus on economic trends rather than the unpredictable outcomes of the political landscape.
“The economy’s trend seems to be a clearer signal for an investor than trying to predict the eventual market impact of any election,” said analysts at Wells Fargo in a Wednesday note.
Investors have been inundated with questions about the potential impacts of the upcoming elections, including whether President Biden will secure a second term or even be his party’s nominee, and whether former President Trump will prevail.
The control of Congress and the prospect of a divided government also loom large. Despite these uncertainties, analysts caution against making significant portfolio adjustments based on election predictions.
"We think it is a bad idea to make meaningful portfolio adjustments based on who you think is going to win the upcoming election."
The rationale behind this advice is the inherent volatility and unpredictability of political outcomes. Recent elections in France, the United Kingdom, and other parts of the world have demonstrated that the public's choices can lead to abrupt shifts, particularly in a post-pandemic, high-inflation environment.
U.S. citizens will soon voice their opinions, which may either maintain the status quo or demand change.
Instead of getting caught up in political forecasts, analysts suggest that investors should focus on the more reliable indicators provided by economic trends.
The Federal Reserve’s actions, for instance, are of paramount importance. While the Fed is unlikely to cut interest rates at this month’s meeting, a rate cut in September remains a possibility.
“We continue to believe there will be two rate cuts this year. In addition, the economy is continuing to slow, and, as a result, the labor market is weakening,” the strategists continued.
In terms of investment recommendations, analysts believe investors should continue to prioritize high-quality investments. They prefer U.S. financial assets over international stocks and bonds, favoring large-cap domestic equities with strong balance sheets and cash flows over smaller-cap companies.
Analysts also think that investors should seek broad-based commodities exposure in their portfolios.