JPMorgan’s Normand Picks Hedges for Divided U.S. Government

(Bloomberg) -- Investors may want to hedge against the risk of the U.S. election resulting in a divided government that can’t pass a meaningful fiscal package anytime soon, according to JPMorgan Chase & Co.

Enacting consequential stimulus could be challenging if either the Senate or the House is controlled by a political party opposed to the next president, strategist John Normand said on a podcast released Thursday. That could dent both the economy and the markets, he said.

Treasuries offer a more limited portfolio buffer now for such a scenario because yields are already low, so investors could consider “second-best” hedges like owning the dollar versus emerging-market currencies, or the yen against a range of currencies, Normand said.

“The newer one I might throw into that mix is owning high-grade credit,” Normand said. “If the U.S. economy is struggling around the turn of the year because of the continued fiscal impasse, the Fed could be upsizing its asset purchases in the credit markets.”

Democratic nominee Joe Biden has an 89% chance of winning the Electoral College tally that determines the presidency, poll aggregator FiveThirtyEight said on Thursday. Yet many pundits argue President Donald Trump’s surprise victory over Hillary Clinton in 2016 shows it would be premature to rule out his prospects of a second term.

Speaking on the podcast with Normand, JPMorgan Chair of Global Research Joyce Chang said she expects Biden’s lead to narrow into election day, citing factors like a sophisticated get-out-the-vote effort by Trump’s campaign.

Markets may be getting ahead of themselves in assuming that U.S.-China tensions would drop under a Biden presidency, Chang said. She sees potential for existing tariffs on imports from China to remain in place, for instance.

At the same time, “there would be less unpredictability and a change in the tactics and the styles as Biden would go back to more multilateral processes,” Chang said.

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