Investors heading into Tuesday’s U.S. congressional elections are trying to fathom how best to predict the outcome and profit from it.
These are some of the ideas that analysts, strategists and traders have:
: BUY ANY DOLLAR DIP
If the greenback drops against other currencies on the election result, Citigroup says it should be bought. “Midterms are less likely to mark a major turning point for USD than some investors fear,” Citi analyst Todd Elmer said in a report.
There is no strong historical relationship between midterms and the path of the U.S. currency, making a Democratic House victory unlikely to thwart the dollar’s rally, Citi said.
: FAANGs COULD FALL ON DIVIDED CONGRESS
One policy initiative that looks viable under a divided Congress is increased regulation of social media companies, said Oliver Pursche, chief market strategist at Bruderman Asset Management in New York. “That is an area where both the Trump administration and Democrats agree,” he said. “We expect that to occur in 2019.” If that happens, shares of Facebook, Twitter and Alphabet, which have come under increased pressure this year, could have more downside.
: BUY REITS ON DEMOCRATIC WIN
Scott Crowe, chief investment strategist at CenterSquare Investment Management, a manager of real assets, said if the Democrats win the House, it likely signals the end of tax cuts or an infrastructure bill for Trump ahead of the 2020 presidential election. If this happens, it would be good news for the 10-year bond yield, and “a lower 10-year bond yield is good news for REITs.”
: EXPECT VOLATILITY TO FALL
Some investment strategists are expecting volatility to ease after the U.S. midterm elections as the elimination of at least one uncertainty the market is facing right now will give traders less reason to worry regardless of what the outcome is.
Parag Thatte, equities strategist at Deutsche Bank in New York says: “Our trading desk thinks betting on volatility reducing after the election would be a good trade right now.”
: DO NOTHING
“In our view, investors should avoid making investment changes based purely on fears or speculation of election outcomes,” said analysts at Wells Fargo Investment Institute.
It is more important for investors to maintain and follow their longer-term investment plan, and await signs of action in Congress, they said.
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