Democratic sweep and tech selloff
SPY•Pictet Asset Management strategist Luca Paolini said a Democratic sweep could prompt a 10%-15% fall in U.S. equities as investors weigh higher corporate taxes and increased AI regulation. He said the firm sees no reason to change its tactical allocation before the midterms.
1. Election scenarios
Paolini said a Democratic sweep, alongside strong performances by progressive candidates in former Donald Trump strongholds, could trigger an equity selloff led by technology stocks. He said investors would worry about higher corporate taxes and increased AI regulation, and that U.S. equities could fall 10%-15%. In a Republican majority scenario, he said the firm would favor U.S. bank stocks over global financials, small caps over large caps, and U.S. upstream oil and gas companies.
2. Current positioning
Paolini said Pictet sees no reason to change its tactical asset allocation ahead of the midterms, but that some protection against either scenario appears sensible given this year's solid equity market performance and optimism in consensus earnings forecasts.
