Strategies ahead of the US presidential election

Uncertainty surrounding the U.S. presidential election could jeopardize some popular investment strategies this year, according to Morgan Stanley. Uncertainty surrounding the U.S. presidential election in November could jeopardize some popular investment strategies this year as investors begin to reduce positions, according to Morgan Stanley. Some popular investment strategies, such as long the dollar against lower-yielding G-10 currencies or shorting long-term U.S. bonds, could be squeezed as investors exit ahead of the election, according to a report by strategists Matthew Hornbach and James Lord. “As early movers reduce their positions, macro markets could move in a way that encourages a broader swath of investors to follow suit,” the Morgan Stanley strategists wrote in a May 31 midyear assessment, which predicted that “most investors will choose to reduce the risk in their portfolios” leading up to the election. Hornbach and Lord expect the currency to still offer modest returns in the coming months, despite the crowded dollar position, as yields in the rest of the world have fallen faster than U.S. yields, adding that the higher risk premium from the U.S. election will also be supportive of the dollar. Morgan Stanley economists Ellen Zentner, Sam Coffin, and Diego Anzoategui, meanwhile, expect the Fed to start cutting interest rates in September and the 10-year U.S. Treasury yield to finish the year at 4.10%, about 30 basis points lower than current levels.