Positioning around the U.S. election

• Former President Donald Trump has won the U.S. presidency, with Republicans retaking control of the Senate. A Trump win opens the door for tax cuts, deregulation and tougher trade policy. House control is key.
• We focus on coming changes in fiscal policy, trade, immigration, energy, regulation — and expect a very different approach to foreign policy. He is likely to propose new tax cuts, potentially including corporate taxes. Elevated budget deficits are one factor we see pushing up inflation and long-term Treasury yields over time.
• What matters for investors: in the near term, we see U.S. equities supported by solid economic and corporate earnings growth, political clarity and Federal Reserve rate cuts. Yet sticky inflation and higher-for-longer interest rates could eventually challenge risk sentiment. For more information on investment implications of the election see BlackRock Investment Institute’s most recent insight: Trump Election Win Signals Big U.S. Policy Shift.

Market Update: leaning into fundamentals and investor sentiment

To stay nimble within equity allocations, we see value in strategies that rotate dynamically around fluctuating macro data. Our U.S. factor rotation strategy has recently added to value amid the current regime. Despite the sharp small cap action after the election — the Russell 2000 surged 5.2% one hour into market open on November 6th, with IWM (iShares Russell 2000 ETF) seeing heightened activity — we believe investors can still focus on large cap exposures for a durable rally. For example, IYF (iShares U.S. Financials ETF) traded 200x its average 30-day daily pre-session volume, consistent with strong earnings growth and expectations of deregulation.

Recent fixed income flows underscore investors’ preference for active management to navigate volatile yield curve fluctuations. Investors added $32bn to fixed income ETFs in October, with 48% added to active fixed income strategies, a sizeable step up from last October’s 30%. Earlier this week, investors added real rate protection seen in the flows of short duration inflation-linked products, consistent with the view that inflation may remain elevated and that real rates in the vicinity of 2% can be a good portfolio diversifier. High yield flows favored active management recently amid the narrowest spreads  since 2007. Investors have favored the backdrop of strong economic fundamentals and robust all-in yields available in high yield markets which have gathered $9.3bn in inflows YTD.

Investors have also added diversifiers in their portfolios, leaning into commodities and digital assets. Both gold and digital assets have seen standout flows and elevated volumes over the past month. Gold ETPs added $4.1bn in October in the exposure’s best month of the year. IBIT, iShares Bitcoin Trust ETF, crossed $30bn in AUM in the final week of the month on the back of significant inflows (October’s daily flows were nearly double their YTD averages), a trend potentially buoyed by this morning's fresh all-time-highs and elevated trading.

Despite risk assets trading at all-time highs, investors have allocated $777bn to money market mutual funds this year with total cash allocations at $6.6 trillion. With the event risk of elections behind us, we expect investors to continue to deploy cash into the markets as evidenced by the $111bn of inflows seen in October, the second largest inflowing month for the year.

 

The iShares Bitcoin Trust ETF is not an investment company registered under the Investment Company Act of 1940, and therefore is not subject to the same regulatory requirements as mutual funds or ETFs registered under the Investment Company Act of 1940.