(Bloomberg) -- The outcome of the US presidential election will likely impact credit markets on a micro level rather than a macro one, according to UBS Group AG.
In the blue-chip bond market, a democratic victory would be supportive for basic industry, capital goods and utilities sectors, but a negative for telecoms, technology, banks, and autos, strategists including Matthew Mish wrote in a Wednesday report.
While the election will likely have a muted effect on macro credit, a new president will certainly impact individual sectors based on policy actions. Ever since Vice President Kamala Harris rose to the top of the Democratic presidential ticket, investors have been keen to learn more about her policy initiatives and how they would differ from another Donald Trump presidency or even a second term for Joe Biden.
Basic industry, capital goods and utilities sectors are expected to outperform because of the likelihood of Harris preserving the Inflation Reduction Act and other Biden-era stimulus policies, reads the report. Underperformance in tech, telecoms and banks would be driven by higher regulatory scrutiny that could lead to fewer mergers and acquisitions. Autos would also underperform amid faster — and less profitable — adoption of electric vehicles and softer defense of US manufacturers from imports, according to UBS.
Overall, credit should benefit in the weeks leading up to the election, if history is any guide. UBS's analysis of credit spreads dating back to 1920 shows that investment-grade spreads tend to tighten in the three months leading up to the election.
More so, a Democratic victory has typically been incrementally better for spreads than a Republican one, while gridlock outcomes also coincide with greater tightening, according to UBS.
The election outcome should have less of an impact in the speculative-grade sector, albeit with a "more negative skew" toward energy, autos, and aerospace/defense sectors in the event of a Harris victory, the strategists wrote.
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