You may have stayed up all night watching the US election results come in. Or like myself, you may have slept on it and woken up early, only to find that the results still haven’t been fully declared yet. Even though both sides are optimistic about winning, we may have to wait for several days before we have a conclusive result. Some key states such as Michigan and Pennsylvania could take a long time to count all the postal ballots.Â
In the meantime, the FTSE 100 has already started to react. It is currently trading just below 5,800 points, up 0.3% on the day. This doesn’t tell the full story as first thing this morning in the futures market the index traded down at 5,650 points. The whipsaw movement is likely to continue in the short term. So what opportunities to invest have the US election results thrown up?
US results impacting the UK market
Remember that stock markets around the world are very correlated these days. The fact that a lot of the FTSE 100 constituents trade in the US, or have indirect suppliers abroad, make the US election results relevant. Given that things are remarkably still too close to call, some stocks are being sold off as a precaution.
For example, oil giants BP and Royal Dutch Shell are both down over 1% already in morning trading. Given that a Biden victory will entail his large renewable energy pledge, this would be negative for both firms. Right now, I’d pass on picking up the oil stocks even with the sell-off. I think the election results are too close to call. However, if you do believe Trump will win the US election, then this could be a good potential buy, given his support for this sector.
Taking advantage of irrational moves
I’m keeping a close eye on investing in stocks that aren’t directly correlated with the US election results. You might think that doesn’t make sense! Here’s the point — we could easily see a broad stock market sell-off that’ll impact all stocks, regardless of whether it’s rational or not. For example, back in March we saw pretty much all FTSE 100 stocks fall in value, even though some were able to perform well. So if we see a similar sell-off, I’m looking to buy some stocks that become mispriced.
I think both Barclays and Lloyds Banking Group are good value plays for long-term investors. So if we see a post-election market sell-off, I’ll be adding these into my basket. I’m also keen to buy Boohoo group again, and will use a sell-off to do so. In my opinion, falls in the share prices for these firms would be an overreaction, given the lack of sensitivity they have to who is the sitting President.
Staying patient
Elections are a time when assets can make irrational moves in the short term. It may be frustrating and sometimes confusing trying to make sense of some of the movements. But I’d stay patient as a long-term investor and aim to take advantage where I can.