With the 2024 US Presidential election approaching, Piper Sandler has examined how market perceptions of the outcome are influencing financial asset prices.
The analysis provides some interesting results, although it comes with notable exceptions and caveats.
Piper Sandler gauged the responses of 34 assets to a potential Biden victory. They found that energy and certain commodities, like gold and silver, have positively correlated returns with the perceived odds of an incumbent victory.
Interestingly, the firm noted a reduced indication that "duration, pot, and pesos" would be the preferred trade if Biden is re-elected, suggesting that common investment themes may not trade as consistently as the campaign progresses.
Based on estimates of asset class performance through recent market closes, Piper Sandler identified a long-short portfolio that maximizes expected returns assuming a Biden win.
This portfolio is long on energy, silver, and gold, while being short on tech stocks, 10-year U.S. Treasuries, health, and consumer discretionary stocks. This portfolio configuration yields a beta to the S&P 500 of zero.
However, the firm cautions that these results rest on strong assumptions and imperfect metrics.
Despite the inherent limitations, Piper Sandler said that controlling for key variables, it estimates the S&P 500 will rise by 3.1% if Biden wins and fall by 1.8% if he loses.