Investing.com -- RBC Capital Markets believes the U.S. election could serve as a key clearing moment for stocks, with positive effects on the S&P 500 and specific sectors like Financials, Energy, and Small Caps—as long as a decisive winner emerges.
Analysts at RBC said in a note Tuesday that investor activity and business planning have been “adversely impacted by the uncertainty around the event,” emphasizing that a prolonged or contested election remains the primary tail risk for U.S. equities, citing the nearly 12% drop in the S&P 500 following the contested 2000 election.
RBC highlights the importance of a clear outcome, regardless of which party wins.
According to the bank, while national polling averages suggest a tight race, betting markets continue to show a slight advantage for Trump, though recent polls indicate gains for Harris.
RBC’s conversations with long-only investors reveal a lack of consensus on the likely outcome, underscoring the high levels of uncertainty in the market.
Historically, RBC’s analysis suggests that the S&P 500 tends to perform well post-election, regardless of Washington’s political makeup.
The firm sees a “modestly bullish” outlook in scenarios with a Republican win or a Trump win and split Congress and “modestly bearish” implications if Democrats sweep both chambers.
They believe the sectors most affected by potential policy shifts include Financials, Energy, Consumer Discretionary, and Industrials, particularly if new regulations or tax changes emerge.
RBC stresses that the market could rally as uncertainty clears, with investors focusing on longer-term opportunities rather than quick trades.
The bank concludes that a clear winner, rather than an extended period of election disputes, is key to reducing near-term volatility and supporting equity market performance.
"In all four outcomes, we think US equities may benefit from tailwinds associated with the passage of the event, as long as a clear winner has emerged," they write.