Attention! Goldman Sachs warns: The risks of the U.S. election are beginning to affect the market
As the U.S. election approaches, market volatility is set to rise, and the market should closely monitor the potential impact of the election.Author: Wall Street Journal As the debate spectacle between Biden and Trump unfolds, the impact of the U.S. presidential election on the financial markets is beginning to gradually emerge. According to Global Times, U.S. media summarized the performances of both candidates in the first 30 minutes: Biden was at times incoherent, while Trump lied about issues such as the economy, abortion, and defense spending by NATO member countries, with both engaging in fierce personal attacks on each other. 
Despite the S&P 500 index having experienced nearly 400 trading days without a drop of more than 2%, Goldman Sachs recently warned that this situation may soon change. 
Goldman Sachs analyst Oscar Ostlund believes that the options market typically begins pricing in around three months before the election. Although we have not fully entered this phase yet, market volatility is expected to emerge soon. As the U.S. election approaches, market volatility is about to rise, and the market should closely monitor the potential impact of the election on the market. The Liu Gang team at CICC believes that with the first round of presidential debates significantly moved up from September to late June, along with the approaching "window period" for monetary policy, the election trading may start early, and the variables and impacts it brings may gradually increase. Additionally, it is worth mentioning that 16 Nobel Prize-winning economists recently issued a joint letter warning that: if former President Trump wins the election in November, his economic proposals will reignite accelerating inflation and cause lasting damage to the global economy. Analysts also pointed out that regardless of whether Trump or Biden is elected, higher inflation is inevitable, with only the pace of increase differing.
Goldman Sachs: Election Risks Begin to Spread to Financial Markets
The first televised debate between candidates for the 2024 U.S. presidential election took place on the 27th at around 9 PM local time (around 9 AM Beijing time on the 28th), with Biden and Trump facing off again after nearly four years. Today's debate may provide new clues on how the market views the impact of the campaign on asset markets. After surveying 800 institutional investors globally, Goldman Sachs summarized three key points: ▲ Whether the Republican or Democratic Party is in power, the government will increase the discretionary spending of the executive branch, which is undoubtedly a negative factor for the bond market. >
▲ If Trump wins, whether in a divided House of Representatives or a unified government, the market believes it will be favorable for the stock market, as this may mean the Federal Reserve will adopt a more dovish policy.
▲ Investors generally believe that a Democratic victory will be unfavorable for the dollar, potentially leading to a depreciation of the dollar. Goldman Sachs strategist Dominic Wilson detailed the potential impacts of four main election outcomes on the market in its election preview report. These four scenarios are Republican sweep, Democratic sweep, divided Trump government, and divided Biden government. Specifically, 1. Republican sweep:
In the scenario of a Republican sweep, Wilson believes the stock market will rebound moderately, yields will rise, and the trade-weighted dollar will appreciate. Since a Republican government may continue the expiring tax cuts and possibly implement further corporate tax cuts, bond yields may rise.
- Democratic sweep:
Wilson believes the stock market will decline moderately, the dollar will depreciate moderately, and yields will rise. This is due to the expectation that a Democratic government will implement larger fiscal stimulus measures, thereby pushing up bond yields.
- Divided Trump government:
In this scenario, the stock market will decline moderately, yields will rise slightly, and the dollar will have significant upside potential. Strong reactions to potential tariffs combined with fiscal tightening may negatively impact the stock market and yields.
- Divided Biden government:
The stock market will perform flatly, yields will decline, and the dollar will weaken. If the reduction in new tariffs is less than expected, this will increase the upside potential of the stock market and may push yields up rather than down.
Goldman Sachs suggests that although baseline estimates do not provide strong reasons for hedging stock risk exposure, investors should remain vigilant in the face of fiscal expansion and tariff risks. A stronger dollar is considered a more reliable way to reduce the downside potential of the stock market, but yields may also be affected by tariff risks.
CICC: How the U.S. Election Affects the Economy and Markets
After reviewing Goldman Sachs' analysis, let's take a look at CICC's perspective. CICC points out that compared to current President Biden, the market is clearly more concerned about Trump's policies, partly because they may bring change and partly because some proposals may be more "extreme." Comparing the policy proposals of Biden and Trump, it is found that there are certain commonalities in trade and investment spending policies, while the main differences focus on fiscal, immigration, and industrial policies. From the perspective of economic and policy impact: 1) Most policies that boost the U.S. economy also carry inflationary attributes, such as trade, investment spending, subsidies, and even immigration policies, which may make it difficult for inflation to sustain a significant decline after the election; 
2) The space for monetary policy may be constrained, as support for either growth or inflation may mean that the Federal Reserve does not need to cut rates too much; 3) The debt ceiling will take effect in January 2025, which may increase the supply of government bonds and the volatility of bond yields. 
From the perspective of market and asset impact: 1) U.S. Treasuries: Post-election policy stimulus expectations and growth recovery, along with rising inflation, will bring more upward pressure on U.S. Treasury yields, while attention should also be paid to the approaching debt ceiling, which may again lead to uneven bond issuance. The supply of U.S. Treasuries in 2025 may be low at first and high later, reminiscent of the situation in October 2023 where the premium on maturities drove U.S. Treasury yields to a peak. 
Overall judgment for U.S. Treasuries is a central tendency of 4%, with a range of 4.7%-4.2% before rate cuts. Loose trading can still occur, but when rate cuts are realized, it may also be when the rate cut trading approaches its end. 2) U.S. Stocks: Overall performance is not bad. The large-scale tax cuts advocated by Trump and the Republican Party will boost corporate profits, but subsidies for high-tech industries may decline, which could benefit cyclical sentiment. 
The large-scale tax cuts proposed by Trump in 2018 boosted corporate profits. 3) Commodities: Under Trump's policy proposals, oil prices may perform relatively neutrally, and accelerating the issuance of exploration permits for oil and gas may lead to an increase in U.S. oil production. 
4) Dollar: There is no basis for a significant weakening of the dollar in the short term. The tax cuts and infrastructure policies after Trump's election in 2016 quickly boosted growth and inflation expectations, leading to a trend increase in the dollar after his election. However, this time Trump proposed a "weak dollar" policy, pushing the dollar's movement to "boost" U.S. exports, which needs to be monitored for its potential impact.
