With the US midterm elections just over a week away, investors are exercising caution, many opting to hoard cash and secure insurance against potential market turbulence. Melbourne-based money manager VP Capital, a firm that manages investments, prefers holding “dry powder” as the November 3 vote approaches. Co-founder John So cited concerns over policy shifts under a potentially divided or Democratic-controlled government, leading to a deliberate move away from high-growth businesses. Global investment giant Schroders, through its Australian head of multi-assets Sebastian Mullins, has also purchased put options, financial contracts protecting against a sharp decline in the S&P 500 index.
This cautious sentiment arrives as Wall Street faces pressure from rising oil prices, surging bond yields, and a faltering AI trade confidence leading to a tech sector sell-off. While historical data shows the S&P 500 delivered positive returns in 95 per cent of the 12-month periods following midterms over seven decades, fund managers remain wary. Concerns centre on the likelihood of Democrats, boosted by US President Donald Trump’s low approval rating, securing control of both houses of Congress. Such an outcome could lead to policies less supportive of corporate tax cuts and increased regulation in technology and artificial intelligence, potentially slowing investment, according to So.
Other investment firms employ diverse strategies. Plato Investment Management, a hedge fund, utilises real-time betting odds for “election stress testing” to model political shifts’ impact. Portfolio manager Chanel Stuart-Findlay noted the Senate represents the greater source of uncertainty. A Democratic sweep could benefit firms like Danish wind-turbine maker Vestas, due to safeguarded clean-energy incentives, while US insurer Humana might face increased regulatory oversight. Australian stocks with significant US operations, such as BlueScope Steel and James Hardie, could also feel the effects. Betashares, an exchange-traded fund provider, observes Australian investors shifting towards broad global funds rather than direct North American exposure, reflecting a strategic adjustment to geopolitical uncertainty.
