Episode Details

On the eve of a competitive US election, our CIO and Chief US Equity Strategist joins our head of Corporate Credit Research and Chief Fixed Income Strategist to asses how investors are preparing for each possible outcome of the race.

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Mike Wilson: Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief US Equity Strategist.

Andrew Sheets: I'm Andrew Sheets, head of Corporate Credit Research at Morgan Stanley.

Vishy Tirupattur: And I'm Vishy Tirupattur, Morgan Stanley's Chief Fixed Income Strategist.

Mike Wilson: Today on the show, the day before the US election, we're going to do a conversation with my colleagues about what we're watching out for in the markets.

It's Monday, November 4th, at 1130am in New York.

So let's get after it.

Andrew Sheets: Well, Mike, like you said, it's the day before the US election. The campaign is going down to the wire and the polling looks very close. Which means both it could be a while before we know the results and a lot of different potential outcomes are still in play. So it would be great to just start with a high-level overview of how you're thinking about the different outcomes.

So, first Mike, to you, as you think across some of the broad different scenarios that we could see post election, what do you think are some of the most important takeaways for how markets might react?

Mike Wilson: Yeah, thanks, Andrew. I mean, it's hard to, you know, consider oneself as an expert in these types of events, which are extremely hard to predict. And there's a lot of permutations, by the way. There's obviously the presidential election, but then of course there's congressional elections. And it's the combination of all those that then feed into policy, which could be immediate or longer lasting.

So, the other thing to just keep in mind is that, you know, markets tend to pre-trade events like this. I mean, this is a known date, right? A known kind of event. It's not a surprise. And the outcome is a surprise. So people are making investments based on how they think the outcome is going to come. So that's the way we think about it now.

Clearly, you know, treasury markets have sold off. Some of that's better economic data, as our strategists in fixed income have told us. But I think it's also this view that, you know, Trump presidency, particularly Republican sweep, may lead to more spending or bigger budget deficits. And so, term premium has widened out a bit, so that’s been an area; here I think you could get some reversion if Harris were to win.

And that has impact on the equity markets -- whether that's some maybe small cap stocks or financials; some of the, you know, names that are levered to industrial spending that they want to do from a traditional energy standpoint.

And then, of course, on the negative side, you know, a lot of consumer-oriented stocks have suffered because of fears about tariffs increasing along with renewables. Because of the view that, you know, the IRA would be pared back or even repealed.

And I think there's still follow through particularly in financials. So, if Trump were to win, with a Republican Congress, I think, you know, financials could see some follow through. I think you could see some more strength in small caps because of perhaps animal spirits increasing a little further; a bit of a blow off move, perhaps, in the indices.

And then, of course, if Harris wins, I would expect, perhaps, bonds to rally. I think you might see some of these, you know, micro trades like in financials give back some along with small caps. And then you'd see a big rally in the renewables. And some of the tariff losers that have suffered recently. So, there's a lot, there's a lot of opportunity, depending on the outcome t