Goldman Sachs believes the most likely outcome is Harris's election with a divided Congress (40% probability), long-term growth/nasdaq/wind power/china/global export themes will outperform large cap, defensive stocks are better than cyclical stocks.
As the results of the USA election are about to be announced, with various outcomes, how will the US stocks perform?
On Tuesday, Goldman Sachs' Chief Trader John Flood simulated the reactions of the S&P 500 index to various outcomes, specifically:
1. If Trump and the Republican Party win across the board (25% probability, S&P index +3%): Financial stocks significantly outperform large caps, cyclical stocks outperform global exporters, consumer stocks perform poorly under tariffs and inflation, and the S&P 500 index rises. Under Trump's leadership, the Nasdaq index will perform well, but not lead. The pace of interest rate changes may lead to lower than expected gains.
2. If Trump wins with a divided Congress (30% probability, S&P index +1.5%): Risk mitigation and the drop in the 10-year yield will outweigh negative financial factors (pun unintended). However, this may mean that the stock market rebound is short-lived. Tariffs and deregulation remain ongoing, making it quite difficult to increase fiscal spending, but long-term rates may decrease to reflect reduced spending. Better for the overall stock market, but less beneficial for undiversified risk.
3. If Harris and the Democratic Party win across the board (5% probability, S&P index -3%): A strong Democratic victory could raise from 21% to 28%, but achieving this goal will be very difficult due to the very few majority votes in 2020. Similarly, after Harris wins the election, the theme of deregulation loses momentum. The combination of these two scenarios is negative for risk assets, but to some extent offset by the end of the event and the decrease in interest rates/weakening of the US dollar. Democratic policies are bearish for oil.
4. If Harris wins with a divided Congress (40% probability, S&P index -1.5%): Long-term growth/Nasdaq/wind power/China/global exporters all outperform large caps; defensive stocks outperform cyclical stocks; under low rates, a weak US dollar and low volatility scenario, buying may occur as the S&P falls, and Harris with a divided Congress should benefit market consensus.
Editor/Somer
