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. Trump and the Republican Party win comprehensively (25% probability, s&p 500 index +3%): Financial stocks significantly outperform the large cap (GSFINREG index), cyclical stocks outperform global export stocks, consumer stocks perform poorly under tariffs (GS24TRFS index) and inflation, s&p 500 index rallies. Under Trump's leadership, the Nasdaq index will perform decently but not lead, the speed of interest rate changes may result in lower-than-expected gains. Republican policies clearly win over (GSP24REP index).
2. Trump wins with a divided Congress (30% probability, s&p 500 index +1.5%): Risk mitigation and a decline in the 10-year yield will outweigh negative fiscal factors (no pun intended), but this may mean that the stock market rebound is short-lived. Tariffs and deregulation (GSXUDREG index) ongoing, increasing fiscal spending becoming quite difficult, but long-term rates may drop to reflect decreased fiscal spending. Better for the overall stock market, but less beneficial for undiversified risk aspects.
3. Harris and the Democratic Party win comprehensively (5% probability, s&p 500 index -3%): A Democratic landslide victory may increase from 21% to 28%, but achieving this goal will be challenging due to the very small majority for 2020. Similarly, after Harris wins, the deregulation theme loses momentum. The combination of these two scenarios is negative for risk assets, but to some extent offset by the end of events and the decrease in rates/weakening of the US dollar. Democratic policies clearly benefit (GSP24DEM index), while oil becomes a loser (GSENOILB index).
4. Harris's election with a divided Congress (40% probability, s&p 500 index -1.5%): Long-term growth (GSXUSGRO index) / Nasdaq / wind power (GSCBDMRN index) / China / global exporters all outperform the large cap; defensive stocks better than cyclical stocks; in low-interest rate, weak US dollar, and low volatility scenarios, s&p decline may be bought into, Harris with a divided Congress should benefit market consensus.
