How the Next U.S. President Could Impact Canadian Investors

For better or worse, the spotlight on the U.S. election shines brighter with each passing day.

As our focus shifts more toward what could happen at the conclusion of the election cycle, Canadian portfolios will surely be impacted. My conversations with advisors are becoming increasingly tactical, as they try to forecast how each potential winner could impact markets. This is complicated by the fact that the macro environment is especially dynamic right now.

While it’s under 3%, inflation is still slowly reaching the desired target. The Bank of Canada had its 3^rd rate cut, dropping the key interest rate to 4.25%. The Fed is posturing for rate cuts in September, and the downside of this effort could be as unprecedented and unpredictable as the upside. U.S. growth is slowing while unemployment has risen to 4.1%. And we haven’t even talked about what some are calling the most important election in modern American history.

With November rapidly approaching, the U.S. presidency is about to change hands, and this is a reality that Canadian investors and advisors should prepare for. So, let’s think through what both a Harris and a Trump presidency could mean for Canadians investing in U.S. markets.

A Harris Presidency:

A Harris presidency comes with a lot of ambiguity. Will her administration look like a continuation of the previous one? Or will she try to woo undecided voters by introducing new ideas while distancing herself from Biden’s platform? While there are a lot of questions still in the air, there are a few things we know for sure.

Harris will prioritize tax hikes for corporations. This could erode corporate profitability, having a negative impact on the markets and the economy – both short-term and long-term. As a climate champion, she could be bad for big oil on both sides of the border, but good for sectors that prioritize green friendly energy and infrastructure. Plus, as a former California senator, she has deep ties and well-established relationships with big tech, which may lead to friendlier policies for the sector. We also know that she will prioritize healthcare expansion with policies to grow Medicare to all Americans.
 

A Trump Presidency:

Warranted or not, Trump is commonly perceived as a pro-market president. With proposed tax policies to reduce both corporate and individual tax rates, his office could stimulate the U.S. economy by increasing corporate profits and putting more spending money in the pockets of consumers. He's also focused on deregulating heavily regulated sectors such as energy, healthcare, and finance, leading to larger investment in companies within those sectors. This includes a vow to reinstate the Keystone XL Pipeline project, which would be a bonus for Canada’s energy sector.

Based on his campaign platform, we know that a second presidency would be more protectionist than the first. The results of this could be mixed, with the potential for reciprocation from other countries. This could lead to protracted trade disputes while negatively affecting the global supply chain. For Canadians, the elephant in the room is his proposed 10% tariff on all U.S. imports, which would be a difficult development for a weakening economy that ships nearly three quarters of its exports south of the border.
 

What Does This Mean for Canadian Investors?

Okay – so we’ve established that both candidates come with a unique set of push-and-pull dynamics. Beyond that, each candidate’s ability to implement their platforms will depend greatly on how divided the U.S. congressional house is post-election. But what we know for sure is that the market is flooded with uncertainty. And that means investors need to prepare for near-term volatility. That’s why I believe that having a high-quality overlay in your U.S. exposure will be important.

FLUS - our U.S. Multi Factor ETF – leans  primarily into quality¹ with some exposure to value²  and momentum³ layered on top. The quality factor is the foundation that supports the more growth-oriented factor exposures, giving investors a best of both worlds approach, all for 25bps. And despite the elevated market volatility this year, FLUS has outperformed the S&P 500 on a year-to-date, 1-year, and 3-year basis.

1. Stocks of companies with strong balance sheets, stable earnings, and consistent growth.
2. Stocks of companies trading at lower multiples relative to their fundamental value.
3. Stocks which have recently outperformed on a relative basis over a 1-year period or less.

To be clear, while this moment will be impactful to Canadian investors, the significance of any one election shouldn’t be overstated. But, when you layer in all of the other market dynamics at play, the sum of the parts suggests that we’re in a complicated phase of the cycle.  And, when things get complicated, sometimes keeping it simple with quality is the best approach.