Macro: Sandcastle economics
Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.
Saxo Group
Summary: Listen to Saxo Market Call on summer events and the US election’s impact on markets, including key reactions and sector outlooks.
In this episode of the Saxo Market Call, John Hardy and Peter Garnry reflect on this summer's events that impacted the financial markets together with host, Søren Otto. Obviously, the US election with all its craze featured prominently.
The political landscape has shifted dramatically, particularly with Kamala Harris replacing President Joe Biden as the Democratic candidate, alongside the assassination attempt on former President Trump. These events have had consequences, not just in politics but also in the markets.
One of the notable market movements following these events was a brief surge in US small-cap stocks. This rally seemed to be driven by the perception that the Republicans, personified by former President Donald Trump, would likely win the election, which historically has led to policies favouring domestic industries and tariffs, boosting smaller companies that primarily operate within the US.
However, this may not have been solely related to election sentiment. The market environment during this period was complex, with several factors at play. For instance, algorithmic trading strategies and hedge fund activities might have contributed to the rally. There was speculation that some of these moves were driven by algorithmic trading systems quickly reacting to news headlines, pushing a large volume of futures contracts in the market, which temporarily inflated small-cap stocks.
This rally was short-lived, as broader market sentiment was impacted by a combination of these factors, along with economic data, global events, and technical market forces. While the initial reaction was significant, it quickly subsided, indicating that investors are still navigating through a complex landscape influenced by both political uncertainty and economic realities.
The political shifts have also led to speculation about which sectors could benefit or suffer depending on the election outcome:
While the market has shown resilience, particularly with retail investors stepping in during dips, there are significant risks on the horizon. The primary concern remains whether the US is heading into a recession. If a recession does occur, especially with a portfolio concentrated heavily in technology stocks, investors could face severe losses. Diversification will be key to mitigating these risks.
Another major risk is geopolitical instability. With increasing tensions in various parts of the world, particularly in the Middle East, the impact on global markets could be severe and unpredictable. Investors should consider adding exposure to sectors like defence, which might offer some protection against geopolitical shocks.
As we approach the US election, the markets will likely remain volatile, with investors closely watching both the political developments and economic indicators. The presidential debates and upcoming economic data releases will be crucial in shaping market sentiment. Investors should prepare for a bumpy ride, with a focus on diversification and a clear understanding of the risks associated with different political outcomes.
To catch the full discussion and gain deeper insights into the summer's market movements, listen to the complete podcast at the top of the page.