Avoiding a contested election in the US next week is the best option for global markets as uncertainty will hold back changes in factor rotation, according to American Century Investments.
Trevor Gurwich, American Century Investments global small caps portfolio manager, said it was very difficult to predict what would happen and elections like these in the past had proven to go in very different directions.
“What I think is important is that we don’t have a contested election and there’s a clear winner,” Gurwich said.
Gurwich said establishing a clear winner would unleash changes in factor rotation within the market which were dependant on the winning party’s policy proposals.
“Whether that’s growth to value, stay-at-home order type of plays – like technology, or cyclical growth type of plays,” Gurwich said.
Aside from a clear winner in the Presential race, acknowledgement of the composition of both chambers of Congress would provide clarity over what policy proposals would pass legislatively.
“The important things that come post-election are a [COVID-19] vaccine and having some pathway out of the pandemic for the global community,” Gurwich said.
“This isn’t going to be an immediate thing because we have to try a vaccine, see whether or not it’s effective, and that will probably take 12 to 18 months to work through.”
The other key factor was a stimulus bill which the Republican party had put on hold while they focused on confirming Amy Coney Barrett to the Supreme Court.
“I don’t think it’s going to pass before the election but post-election we should get a stimulus bill that should help support that rotation when it does happen,” Gurwich said.
Gurwich said within the small cap world, he believed it was in a cyclical recovery trend.
“That is witnessed by a lot of the mobility data by the endless fiscal and monetary support – almost 40% of global gross domestic product (GDP) today is supported by fiscal and monetary support,” Gurwich said.
“In environments where you do see this recovery out of deep recessions, typically small caps outperform large caps.
“That’s happened during the Global Financial Crisis, Ebola and Y2K – we really see small caps rebounding.
“Consensus expectations for small caps globally is almost 30% growth in 2021 against -10% for 2020.”
