How the US election will affect your investments

As election fever has subsided in the US, and businesses across the states are facing up to potential government spending cuts, we can now look at how the result may influence the performance of investments including UK pensions, ISAs and stocks and shares.

In common with the UK and many other developed economies, the US is struggling with a large budget deficit. During the long election campaign, the US administration put off implementing the austerity measures that most other developed economies are now familiar with.

The American administration has been delaying unpopular cuts that would help to reduce its deficit, because it would likely have been a vote-losing strategy. Now the election is over, the country has to face reality to halt this decline and address the issue before it risks developing an untenable economic position.

As a result, the US government is now debating the implementation of a round of tax increases and spending cuts that have been named ‘the fiscal cliff’.

Whilst the uncertainty about the financial future of the country is under dispute, shares on the American stock exchange will be subject to increased levels of volatility as investor confidence wavers.

Since many British holders of pensions, ISAs and stocks and shares have directly or indirectly invested in these companies, they may also see volatility in the value of their portfolios.

The result could be that those who have portfolios which have invested in the larger American companies – which many of us will have – could start to see volatility – at least until markets are clear on how the Obama administration will proceed.

The fact that President Obama, now in his second term in office, will not be able to run again in four years’ time could make markets even more nervous. Obama has nothing to lose now and so may feel able to make some very tough cuts, which he wouldn’t have been able to make whilst standing for election.

On a positive note, the US is probably closer to leaving recession than any other western economy, and their aggressive stance on generating growth will pay dividends in the long term. Furthermore, companies such as Apple, Coca Cola and Microsoft are world-leading innovators with a global customer base, and will likely weather any downturn caused by economic policy tightening.

Markets around the world will be watching closely to see whether it seems that Obama is striving to clear large swathes of the deficit as part of his lasting legacy. Anyone who is uncertain about how their investments might be affected by the US election should make an appointment with their independent financial adviser to review their portfolio.

James Thompson
Taylor Patterson