How to Prepare Your Portfolio for a Harris Victory

It has often been said that a week is a long time in politics, but the last few weeks in American politics have each seemed like decades in terms of the changing landscape. Just a month ago, the overwhelming winner of the Democratic primary, the incumbent President Joe Biden, was neck and neck in the race with Donald Trump. Then, following a disastrous performance in the first televised debate, Biden's ability to run was called into question, even by previously loyal Democrats. That led to Trump taking a lead in the polls, a lead that extended when he survived an assassination attempt.

That lead looked so strong that, just last week, I wrote a piece recommending some stocks to buy in anticipation of a Trump win. Then, this past weekend, Biden bowed to the pressure from within his party and stood down, endorsing his Vice President Kamala Harris on the way out. The rest of his party has rallied around Harris, and her nomination as the Democratic candidate now looks like a formality. It remains to be seen whether that gives a big boost to the Democratic ticket for November but given Harris's popularity with two groups who were seriously lacking in enthusiasm for the original candidates, young women and people of color, it could well do.

So, a week after considering what to buy should Trump win, it is worth looking at a strategy for investors that would prepare your portfolio for a Harris win.

The first thing to say is that buying anything right now would be a mistake. It is possible, maybe even likely, that Harris will fare better than Biden, but it is not by any means certain. Trump was leading in the key swing states by 3-7 points before Biden stood down, significant leads that will take some turnaround from Harris to overcome. And even if the polls do start to show her leading where it counts, holding off may still be your best bet.

It is no secret that Wall Street skews to the right politically, nor is it a surprise. Traders, big investors, and fund managers tend to be wealthy people with an appreciation of free markets, two things that generally make somebody right-leaning in the modern political landscape and historically, that bias has been obvious in the runup to elections. Markets tend to fall if a Democrat is leading in the polls and rise if a Republican leads. In fact, we have seen that in just the last week or two, with a strong rally after the assassination attempt strengthened Trump's position and big drops as Harris has gained popularity. That is likely to continue if the race remains close or Harris takes the lead so, if anything, I will be selling some stocks, particularly big oil stocks, over the next few weeks.

That, however, will free up money to buy around election day itself, because markets typically do well after an election, no matter who wins. When Democrats prevail, they go out of their way to at least appear as moderate, and traders and investors start to look at historical fact rather than trading on their inherent bias. And, as surprising as it often is to many people, history, and in particular recent history, shows that markets do better under Democratic Presidents than Republican.

Maybe that is down to their propensity to spend government money, or maybe, given that politicians generally have less influence on the economy than they think they do, it is just a coincidence. Recently, for example, Barack Obama took over after a massive recession and credit crisis that made George W Bush's record look weak, and then saw the Dow gain around 150% while he was in office. Then, Joe Biden took over shortly after a global pandemic that shut down the world's economy and tanked Trump's overall numbers, and the S&P 500 has gained around 50% during his four years in the White House. Whatever the reason, the fact is that selling into the fear of a Democratic President and then buying whether they win or lose has been a winning strategy for a long time.

Even in 2020, when the economy was recovering strongly from the pandemic, stocks lost ground in September and October as the election approached and Biden was leading in the polls. Once the election was done, however, the strong gains returned, and the S&P put on over 40% over the next few months.

If Harris does turn this around for the Democrats and actually wins in November, I will look at specific sectors and individual stocks to buy then. Right now, it is unclear where on the political spectrum she will run, so it is just too early to make that kind of call. However, from a strategic point of view, history shows that trimming or even cutting positions in the event that she does make progress, then buying back in once the election is over is the best overall strategy to adopt.