Trump vs. Harris in the Presidential Race
Investing.com — Former President Donald Trump is closing the gap on rival Kamala Harris for the White House, raising the odds of a "Republican sweep." However, concerns are growing that a second Trump presidency could exacerbate inflation. JPMorgan analysts posit that equities might serve as a good hedge against inflation risks.
Equities as an Inflation Hedge
JPMorgan noted in a report, "Equities, as a real asset, are the most effective hedge against inflation and thus from an asset allocation point of view, an essential overweight for those fearing inflation risks during a second Trump presidency."
Recent data shows that the likelihood of a Republican sweep in the upcoming November 5 election has increased, approaching 50% in the Polymarket prediction market.
Historically, during periods of macroeconomic stability, equity returns have remained steady despite fluctuations in interest rates. JPMorgan analysts remarked, "Since 1996, the equity yield of the S&P 500 has hovered between 6% and 8%, even as bond and cash yields have dropped significantly."
Sensitivity of Equities
In contrast, during times of macro or policy uncertainty, like the years between 1967 and 1981, the S&P 500 exhibited a higher sensitivity to interest rate changes.
Current polling indicates Trump is narrowing the gap with Harris in crucial battleground states, elevating the chances of a Republican victory in both the White House and Congress – a predicted Republican sweep.
Despite this, the notion of a Trump win raises fears among investors regarding inflation returning around late 2025 or 2026, potentially due to looser fiscal policies and supply chain disruptions.
Learning from Recent Inflation
Analyzing the inflationary period from mid-2020 to mid-2023 suggests that commodities such as equities, energy, and industrial metals fared well against inflation. In contrast, bonds generally underperformed relative to inflation, as did gold.
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