3 Post-Election Scenarios for Investors to Prep for: UBS

UBS expects a blue wave to accelerate the U.S. dollar's decline, with Biden pursuing a less aggressive pro-growth agenda than the incumbent.

As for credit markets, the election outcome could affect spreads in specific sectors, such as energy, health care and autos for the reasons stated above.

A Red Wave

Energy would be the biggest winner in a Republican sweep, UBS says, reflecting relief that the sector would likely avoid the stricter regulations proposed by the Democrats.

UBS expects a continued tough line on trade in a second Trump administration, leading to accelerated reshoring of production to the U.S. That could benefit both American and European and Asian companies involved in automation and robotics. Tariff threats would remain a risk for European and Asian exporters.

In a red wave, the greenback would remain under pressure given the narrowing of the U.S. rate advantage, but the pace of depreciation would slow because a second Trump term would likely generate a dollar-positive mix of tax cuts, fiscal spending targeted at infrastructure and deregulation.

Election Agnostics

For investors who want to maintain equity exposure without adding significant policy or headline risk, UBS sees strong potential in enabling technologies, which stand to grow swiftly regardless of the outcome of the November vote.

These technologies include artificial intelligence, augmented reality, virtual reality, big data, cloud computing and 5G. UBS expects them to grow by double-digit percentages on average during the next few years.

The election outcome? According to UBS, prediction markets now see a roughly 60% chance of a Biden win, and even a roughly 50% chance of a Democratic sweep of both the House and Senate. It notes, however, that these markets have failed recently to correctly predict results.

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