Heading
into
November’s
U.S.
presidential
election,
professional
investors
agree
on
one
strategy
—
diversification
remains
key.
Stocks
have
been
on
an
tear
this
year,
with
the
S
&
P
500
and
Nasdaq
Composite
closing
at
all-time
highs
this
week
even
as
questions
swirl
about
when
the
Federal
Reserve
will
start
to
lower
interest
rates.
A
rotation
out
of
mega-cap
growth
stocks
on
Thursday
briefly
sent
the
indexes
lower,
but
they
bounced
back
Friday,
briefly
sending
the
Dow
Jones
Industrial
Average
to
an
intraday
record.
Now,
election-related
risks
are
also
being
considered.
To
shed
some
light
on
how
investors
might
best
assemble
their
portfolios
beforehand,
CNBC
Pro
asked
three
Wall
Street
professionals
to
share
their
recommendations
on
how
to
position
assets
in
the
weeks
ahead.
Diversification
to
hedge
tax
rate
risk
FBB
Capital
Partners’
Mike
Bailey
said
that
should
former
President
Donald
Trump
win,
his
tax
cuts
might
mean
better
overall
prospects
for
equities.
“The
big
event
which
could
make
a
significant
impact
in
the
equity
markets
is
the
tax
rate,”
the
firm’s
director
of
research
told
CNBC.
“Certainly,
we
saw
a
huge
move
up
last
time
when
taxes
were
down.”
Bailey
emphasized
that
while
his
investment
strategy
avoids
predicting
macroeconomic
events
and
timing
the
market,
Depending
on
the
election’s
outcome,
there
could
obviously
be
different
results
for
investors,
investors
could
find
it
helpful
to
look
at
the
extreme
outcomes
of
the
election.
In
the
case
of
an
all-blue
sweep,
Bailey
highlighted
the
likelihood
that
renewable
energy
stocks
would
get
a
boost.
That
would
include
Tesla
,
NextEra
and
some
of
the
solar-panel
stocks.
On
the
other
hand,
a
red
wave
would
likely
benefit
oil
and
gas
companies,
banks
and
pharmaceutical
stocks.
Against
this
backdrop,
Bailey
said
that
the
most
important
thing
for
investors
to
do
is
diversify
their
portfolios.
He
recommended
diversifying
across
different
asset
classes,
since
higher
tax
rates
could
lead
to
downside
in
the
equity
market.
“If
tax
rates
change,
I
don’t
think
bonds
are
going
to
move
that
much,
so
you’re
pretty
safe
on
that
side,”
he
said.
“If
tax
rates
move
and
you
own
a
big
multinational
company
in
the
U.S.
—
a
big
drug
company
or
big
tech
company
—
only
a
portion
of
their
earnings
are
going
to
take
a
hit
…
So
just
make
sure
you’re
diversified.
Don’t
get
stuck
with
a
bunch
of
small-cap
domestic
U.S.
stocks
and
nothing
else.”
Rotating
out
of
the
Magnificent
7
John
Davi,
chief
investment
officer
at
Astoria
Portfolio
Advisors,
believes
that
the
interest
rate
cycle
will
pose
more
of
a
long-term
impact
than
the
election.
“Regardless
of
which
party
wins,
we’re
still
going
to
have
a
large
deficit,
and
we’ll
still
be
spending
money,
so
we
think
that
inflation
is
going
to
be
structurally
higher
for
years
to
come,”
he
told
CNBC.
If
the
outlook
for
rate
cuts
this
year
from
the
Federal
Reserve
grows
more
solid,
that
justifies
Thursday’s
rotation
out
of
growth
assets,
Davi
said,
adding
that’s
the
“most
important
decision”
investors
can
make
today.
“This
rotation
out
of
growth
into
everything
else
besides
the
Mag
Seven
will
continue
if
we
do
get
a
couple
of
rate
cuts,”
he
said.
“You’ve
made
a
tremendous
amount
of
money
on
the
Mag
Seven;
it’s
gone
up
much
further
than
anyone
anticipated.
The
rest
of
the
U.S.
market
is
very,
very
attractive,
so
your
entry
point
into
stocks
is
crucial.
It’s
everything.”
Outside
of
domestic
stocks,
Davi
is
also
keeping
an
eye
on
emerging
market
assets.
China
could
be
a
big
play
depending
how
the
U.S.
election
shapes
up,
as
could
Mexico
if
manufacturing
continues
to
move
closer
to
the
U.S.
in
the
process
known
as
reshoring
.
Geopolitics,
credit
show
need
to
diversify
Komal
Sri-Kumar,
the
president
of
Sri-Kumar
Global
Strategies,
echoed
Davi’s
assessment
that
investors
should
focus
on
diversifying
away
from
the
Magnificent
Seven
stocks
between
now
and
the
November
vote.
This
is
especially
true
as
possible
geopolitical
risks
might
increase
in
the
runup
to
the
election.
“The
stock
market
is
very
stretched,
and
some
of
these
company’s
price
valuations
are
even
more
stretched
than
the
average,”
he
said
to
CNBC.
“That
is
why
[investors]
need
to
be
more
careful,
especially
since
value
becomes
very
important
during
this
short
interval
period
just
before
and
after
the
elections.”
Beyond
stocks,
Sri-Kumar
also
believes
that
the
risk
of
another
credit
event
has
risen.
Whether
that
means
a
banking
or
commercial
real
estate
crisis,
either
could
pose
an
obstacle
for
markets.
