Month: September 2024

The upcoming U.S. presidential election could have notable implications for the European economy, particularly in the areas of trade and defense, UBS discussed in a report released Wednesday.

According to the investment bank, the race has gained momentum following Kamala Harris’s entry, with her campaign surpassing Donald Trump’s in key areas such as fundraising and poll performance. While the election’s outcome remains uncertain, the potential impacts on Europe are becoming clearer.

Trade is expected to be a major concern for Europe, regardless of who wins the White House.

The U.S. is the European Union’s largest trading partner, and any shift in U.S. trade policy could ripple across the continent.

“Our expectation is that under any scenario, there is a very low chance of a significant trade deal between the EU and the US,” UBS’s report states.

Instead, attention will likely focus on potential protectionist measures, particularly under a Trump administration. His campaign has floated extreme tariff measures, such as a 10% tariff on all imports, which could be used as leverage in negotiations to reduce the trade deficit and promote U.S. manufacturing.

A Harris presidency, in contrast, is expected to maintain continuity in trade and defense policies, which could prove less disruptive for European investors.

UBS suggests that “a Harris presidency should largely represent continuity and potentially a more predictable policy path on defense and trade.” This stability could mitigate risks to economic growth in Europe, providing a more favorable environment for investment.

On defense, European nations are already preparing for a future where U.S. support cannot be taken for granted.

The report highlights that “irrespective of the outcome of November’s presidential ballot, European countries are already aware that they need to devote more resources to defending themselves.”

This is particularly pressing given the recent increases in defense spending due to the energy crisis and the conflict in Ukraine. A Trump victory might accelerate this need, potentially straining European budgets, while a Harris administration could offer more time to adjust.

“In addition, if Europe were to divert more funding to Ukraine to make up for waning US support, we could see additional strains on finances in the absence of an end to the conflict,” UBS continued.

“Even in countries with relatively healthy finances such as Germany, political pressures are starting to raise questions about how willing and able Europe is to run larger-than-usual deficits.”

Overall, UBS believes that the U.S. election will influence the timing of European defense spending more than the ultimate direction.

A Trump presidency could accelerate the need for increased spending, while a Harris presidency may allow for more gradual adjustments. Though immediate spending could strain budgets due to Europe’s limited defense manufacturing, UBS believes long-term economic benefits might arise from enhanced capacity and innovation in the sector.

Investing.com — The inclusion of a company in a major stock index like the S&P 500 is often seen as a hallmark of success, signaling to the market that the company has achieved a certain level of financial stability and growth. 

However, analysts at Strategas Securities in a note suggest that the reality may not be as straightforward as it appears. 

One of the most compelling findings from the Strategas Securities analysis is the stark difference in performance of companies leading up to their inclusion in the S&P 500 compared to their performance afterward. 

The study examined 160 companies that were added to the S&P 500 between 2015 and 2024. “On average, the names outperformed the S&P 500 by +4800 bps, just mildly better than the -66 bps of underperformance exuded 12 months post inclusion as noted in the prior point,” said analysts from Strategas Securities. 

This  outperformance could be attributed to the “buy the rumor” phenomenon, where investors anticipate a company’s inclusion in the index and drive up its stock price in the months preceding the official announcement. 

The inclusion itself is often seen as a validation of a company’s growth and stability, leading to heightened investor interest and, consequently, a surge in stock price.

However, the picture changes dramatically after inclusion. The same study found that in the 12 months following their inclusion, these new constituents underperformed the broader index by an average of 66 bps​. 

This underperformance is surprising, especially considering that companies usually need to demonstrate improving fundamentals to meet the eligibility requirements for index inclusion.

The post-inclusion underperformance raises questions about the long-term benefits of being added to a major index. It suggests that much of the positive impact of inclusion is already priced in by the time the inclusion occurs. 

Moreover, the surge in stock price leading up to inclusion might lead to overvaluation, making it difficult for the stock to sustain its performance afterward.

The analysis also explored the performance of companies that were removed from the S&P 500, excluding those that were acquired. “On average, these names underperform the index by ~-825 bps in the 12 months after their exit,” the analysts said.

This is not entirely unexpected, as removal from the index often reflects a deterioration in a company’s fundamentals, which typically continues post-exit.

Investing in an index does not guarantee sustained outperformance, as Strategas Securities explains. The phenomenon of “buy the rumor, sell the inclusion” seems to be at play, where the market reaction to anticipated inclusion is far more positive than the actual benefits of inclusion itself. 

For long-term investors, this suggests a need for caution and a more nuanced approach when evaluating the impact of index inclusion on a stock’s future performance.

Additionally, the underperformance of companies post-exit underscores the importance of maintaining strong fundamentals. 

While inclusion in a major index can provide a short-term boost, companies need to continue demonstrating robust financial health to sustain long-term success.

Investing.com — As the 2024 U.S. Presidential election approaches, analysts at TD Securities have identified seven key states that will play a crucial role in determining the outcome. 

These states, a mix of traditional swing states and newer battlegrounds, are pivotal due to their unique demographic compositions, recent political trends, and their combined electoral significance.

Arizona

Arizona has emerged as a critical battleground with competitive races at both the presidential and congressional levels. 

Historically a Republican stronghold, the state has seen a shift towards the Democratic Party, particularly in urban areas like Phoenix. 

The outcome here will hinge on key issues such as immigration, healthcare, and the state’s near-total abortion ban, which was recently overturned.

 The gubernatorial race, which Democrats won in the midterms, will also provide insights into the state’s political direction.

Georgia

Georgia, a traditionally Republican state, flipped to the Democratic column in the 2020 election for the first time since 1992. 

This trend has made Georgia a focal point for both parties in 2024. The state’s growing suburban population, particularly around Atlanta, is increasingly diverse and has been leaning Democratic. 

However, former President Trump’s continued influence in the state and his attacks on the GOP Governor could affect voter turnout and preferences, making this a highly unpredictable contest.

Michigan 

Michigan is another key state with a diverse electorate, including significant Arab-American populations in cities like Dearborn and Detroit. 

The state’s economy, heavily reliant on the automotive industry, has been a central issue in recent elections. Additionally, Harris’ endorsement by the United Auto Workers (UAW) union could be a decisive factor. Foreign policy, especially concerning Israel-Gaza, is also expected to play a significant role in influencing voters in this state.

North Carolina

North Carolina has been a closely contested state in recent elections, with President Obama narrowly winning it in 2008. 

The state’s political landscape is marked by a mix of urban liberal enclaves and conservative rural areas. The gubernatorial race is expected to favor Democrats, which could provide a boost to Harris’ campaign. 

The state’s demographic changes, particularly with an influx of younger, more progressive voters in urban areas, will be crucial in determining the outcome.

Nevada 

Nevada is another state where demographic shifts, particularly among the Latino population, will be key to the election outcome. 

The state has been leaning Democratic in recent presidential elections, but the margin of victory has been slim. 

Both parties are expected to heavily court Latino voters, who make up a significant portion of the electorate. 

The presence of a bellwether Senate race in the state adds another layer of complexity to the presidential contest.

Pennsylvania 

Pennsylvania is arguably the most critical state in the 2024 election. With 19 electoral votes, it is often seen as a must-win for both parties. 

The state has a diverse electorate with significant rural, suburban, and urban populations. 

Philadelphia’s suburbs, in particular, are a key battleground, with trends in these areas likely determining the overall outcome in the state. 

Democrats performed well in the 2022 midterms here, but the electorate will be different in a presidential year, making the outcome uncertain.

Wisconsin 

Wisconsin rounds out the list of key states, with its suburban areas around Milwaukee being some of the most critical regions to watch.

Like Pennsylvania, Wisconsin has a diverse electorate that includes both rural conservative voters and urban liberal voters. 

The outcome in Wisconsin is likely to be decided by voter turnout in these suburban areas, making it another essential state for both Harris and Trump.