With Election Day just five weeks away, investors are growing increasingly fearful of a contested presidential election—and UBS is the latest Wall Street firm to warn about increased stock market volatility telling clients to buy safe haven assets like gold.
The looming standoff between President Donald Trump and Democratic nominee Joe Biden could lead to disputed results with no clear winner on Election Day, which would weigh heavily on the stock market, UBS warned clients.
Trump has thrown into question whether he would accept a peaceful transfer of power if he loses; meanwhile, a rise in mail-in ballots—as the coronavirus keeps many people from voting in-person—could also lead to delayed results.
“A contested [election] outcome is still a possibility, which could add to further volatility and result in safe-haven flows,” UBS chief investment officer of global wealth management Mark Haefele told clients in a recent note.
The firm said that because of a “far-from-certain” election outcome, clients should buy gold, a traditional safe haven asset which tends to perform well during times of economic uncertainty.
Although Gold prices fell by more than 4% last week—their worst decline in a month and a half, UBS said that the recent pullback was just a temporary correction and that gold is set to rally higher going into the election.
“Concerns over renewed COVID-19 restrictions, U.S. fiscal stimulus, and ongoing U.S.-China tensions have all weighed on risk sentiment, which traditionally favors safe havens such as gold,” Haefele said.
With stock market volatility expected to be high for the rest of 2020, UBS identified a handful of stocks for investors to ride out uncertainty through the end of the year. Those include Apple, Concho Resources, Constellation Brands, Deckers Outdoor, Electronic Arts, Lowe’s, Morgan Stanley, NextEra Energy, Nvidia and ServiceNow.
Gold prices have surged so far in 2020 amid the coronavirus pandemic. With the U.S. economy in a recession since February with high levels of unemployment, the precious metal has been a popular trade for investors seeking to hedge against volatility. Gold prices topped $2,000 per ounce for the first time ever in August. UBS said that gold will also continue to rally thanks to support from the Federal Reserve, which has pledged to keep interest rates near zero until at least 2023 in a bid to help the economic recovery. “With this gridlock ongoing, we acknowledge that the Federal Reserve will remain accommodative,” Haefele added.
What To Watch For
Many Wall Street firms have been warning for months of rising volatility around the election. Investors are debating whether a Trump or Biden White House is better for the markets and the economy. Trump is generally viewed as the pro-business candidate by Wall Street, since Biden has pledged to raise corporate taxes. But a Biden presidency would bring more stability on both the trade front and immigration, as Trump’s volatile relationship with China has roiled markets in the past. A victory for Joe Biden and a Democratic sweep—where Republicans lose the Senate—would result in the biggest rebound in economic growth and employment, according to a recent analysis of both candidates’ economic proposals by Moody’s Analytics. “Even allowing for some variability in the accuracy of the economic modeling and underlying assumptions that drive our analysis, we conclude that Biden’s economic proposals would result in a stronger U.S. economy than Trump’s,” Moody’s chief economist Mark Zandi said.
World News || Latest News || U.S. News