Michael Bloomberg, businessman, philanthropist, and former mayor of New York, has entered the race for the Democratic presidential nomination. There are already 17 other Democratic candidates for the nomination. Mr Bloomberg served three terms as New York mayor starting in 2001. He is the co-founder of Bloomberg L.P., a financial services, software, and media firm.

With a year to go until the election, uncertainty over the outcome remains high and we believe investors should not position in the hope, or expectation, of a specific outcome. But US stocks could face higher volatility as the election approaches. In particular investors should brace for potential volatility in sectors such as technology, energy, and healthcare which could be affected by election uncertainty.

* Regulation of tech giants: Investors should prepare for greater scrutiny of big tech, in our view. President Trump has previously signaled that the tech giants could face scrutiny from antitrust regulators, and the Department of Justice is already conducting a review. Among the Democrats, Senator Elizabeth Warren has released a “How we can break up Big Tech” plan, while former vice President Joe Biden has urged further investigation before taking any action. Proving that internet companies are monopolies is difficult; antitrust cases can take a long time to build and litigate; and presidents cannot dismantle companies on their own accord. Investors concerned about increased regulation could consider diversifying exposure by shifting focus from the larger tech firms to other companies benefiting from long-term digital transformation.

* Energy firms will be in focus: The Trump administration has loosened environmental regulations, and this trend would likely continue in a second term, in our view, while any Democratic president would almost certainly re-tighten them. Bigger policy changes like the Green New Deal are unlikely to pass if Congress is divided. However, the carbon-based energy sector may well come under pressure from measures to curb carbon emissions, and the exploration and production subsector could be affected if a President Warren followed through on her pledge to ban fracking by executive order, even if the legal status of such a move is unclear. By contrast, we would expect companies connected to clean energy, clean air, carbon reduction, and energy efficiency to perform better under a Democratic administration, so they could offer a potential “hedge” against the risk of more aggressive environmental legislation.

* Healthcare providers could face headwinds: The Affordable Care Act (ACA) has been weakened under President Trump. Democrats still favor the ACA – former vice President Biden aims to preserve most of it, and build on it with a new government-run public insurance option. Warren advocates “Medicare for All,” which would cost the US government about USD 32–33trn over 10 years, although any such bill would be unlikely to pass without a Democratic super-majority in the Senate. If the Democrats win, therefore, a move toward greater provision of public healthcare is likely, as is a form of restriction on the prices drug companies can charge, which already enjoys some bipartisan support. Limits to pricing power would hurt the healthcare sector and the pharmaceutical industry.

So, while the US is one of our preferred markets, specific sectors could face volatility – or even longer-term headwinds – as the election campaign progresses. Diversification can help reduce these risks, alongside sector-specific strategies if certain threats mount. For more details, see our Year Ahead 2020 publication. We will continue to monitor developments in the US presidential race in our ElectionWatch series.