The FTSE 100 gave up gains on Tuesday as investors braced for the US election and potential volatility that could ensue as results come tomorrow.

The race has been too tight to call, with polls split and a deeply polarising election campaign showing little sign of a clear favourite. As a result, investors have been reluctant to make big bets, opting to reduce exposure to equities and await the results—whenever they may be.

The FTSE 100 was trading down 0.1% as the dollar weakened against the pound and gold found support.

‘Trump trades’, including long bitcoin and gold, faced pressure yesterday after an election poll from Iowa suggested Harris was the favourite in the historical Trump stronghold. These trades are slightly recovering today.

“Gold prices remained stable as investors were cautious ahead of the US presidential election,” said Ruben Ferreira – Head of Portuguese Operations at FlowCommunity.

“The possibility of delayed election results could introduce additional market uncertainty in the coming days and could fuel some volatility in gold prices.”

The FTSE 100 took a clear risk-off tone on Tuesday, with defensive shares, including BT Group, Severn Trent, and United Utilities, outperforming. Declines in some overseas earners reflected uncertainty about what the dollar could do after the election.

“The fact both defensive sectors including utilities and tobacco and cyclical sectors such as miners were in demand would suggest that investors might be hedging their bets ahead of the US election result. A series of broker upgrades for the UK utilities sector also helped,” said Russ Mould, investment director at AJ Bell.

“A contested election result could cause volatility on the markets which theoretically would see defensive stocks provide some portfolio ballast. Equally, a clear winner quickly after voting ends could provide some relief to investors and keep markets trucking along.

“Whether that remains the case a few days later is uncertain as investors haven’t priced in a particular win yet, and there will be good and bad points to digest for markets if either Donald Trump or Kamala Harris wins. Once investors have had time to consider the new lay of the land, there will almost certainly be shifts in investment portfolios.”

AB Foods was the top riser in early trade on Tuesday as investors digested a 32% jump in profits and further growth for Primark. Unfortunately, the strong gains of the morning session didn’t last, and ABF shares were just 0.9% higher at the time of writing.

“Associated British Foods is a company that really knows what it is doing. It understands its audience – particularly for its Primark chain – and it makes sensible long-term decisions to help drive long-term growth,” Russ Mould said.

“What is notable is the company achieved a strong set of results despite Primark in the UK being affected by a wet summer which, for a business reliant on footfall, was less than ideal. This was made up for by strong progress in overseas markets, lending credence to the idea the Primark offering can be a success outside of its domestic market.

Aferian plc has reported significant growth momentum in the second half of 2024, with revenue expected to be approximately 20% higher compared to the first half of the year.

This growth has been driven by new business wins and increased sales orders, primarily fueled by growing market demand for enhanced video streaming experiences across multiple sectors.

“We are encouraged by the strong performance in the second half of the year, with increased sales orders and new business wins across the Group. Combined with our cost reduction efforts and improved cash flow, we are well-positioned to close the year on a positive note and drive sustained growth into the future,” said Mark Carlisle, CEO of Aferian plc.

The company’s improved performance in H2 has translated into positive financial metrics, with adjusted EBITDA expected to reach approximately $2 million. This improvement reflects both the revenue growth and the successful implementation of cost reduction measures initiated earlier in the year.

Looking at the bigger picture, Aferian’s strategic focus on meeting consumer demand for improved video streaming solutions continues to drive business expansion. The company anticipates a reduction in net debt by year-end, supported by realized cost savings and enhanced working capital management, which have contributed to improved free cash flow generation in the second half of the year.

ASOS shares slipped in early trade on Tuesday despite the online fashion retailer announcing final results on Tuesday that demonstrated a year of progress and delivery on goals to reduce inventory and refocus on fashion.

ASOS has reported significant financial improvements in its latest results, with adjusted EBITDA reaching £80.1m in FY24, positioning at the upper end of market expectations.

The company achieved a remarkable turnaround in free cash flow, generating £37.7m, representing a £250.7m improvement compared to the previous year. This enhancement was supported by comprehensive refinancing and the establishment of a Topshop and Topman joint venture.

ASOS has completed a substantial stock clearance program, reducing inventory levels by approximately 50% since FY22 to £520m. This reduction included a £100m write-down as part of the transition to a new commercial model. The company has significantly improved its stock profile, with aged inventory reduced by 75% year-on-year and more than 80% of current stock less than six months old.

“Asos is executing its “back-to-fashion” strategy by shifting its focus from dresses to a more balanced mix of casual wear, athleisure, and everyday styles,” said Yanmei Tang, Analyst at Third Bridge.

“This change not only enhances profitability but also allows for a wider range of trends and storytelling in marketing. By refining its offerings, Asos aims to attract a diverse customer base, from aspiring teenagers to style-conscious thirty-somethings.

“Asos has shifted its focus from rapid sales growth to profitability, reducing stock and emphasizing products with higher contributions. While this may hurt short-term sales, our experts believe it’s a smart move for long-term sustainability, especially in challenging markets like the US and Germany, where returns can be high.”

Looking ahead to FY25, ASOS projects substantial margin improvements, forecasting at least a 300 basis point increase in gross margin to exceed 46%. The company expects adjusted EBITDA to grow by at least 60% to between £130m and £150m, despite an anticipated £10m to £20m negative impact from the Topshop and Topman joint venture in its first year. Free cash flow is expected to remain neutral, with capital expenditure projected at £130m and cash interest costs of £35m.

In the medium term, ASOS aims to achieve a gross margin of approximately 50% through increased full-price sales and flexible stock models. The company plans to reduce capital expenditure to 3-4% of sales and targets an adjusted EBITDA margin of around 8%.

Management expects these improvements, combined with enhanced profitability and cash flow, to contribute to reduced net debt and interest levels over time.

The ASOS share price was down over 49ers % at the time of writing.

The FTSE 100 was stronger ahead of the US election this week, with firmer oil prices helping lift the oil majors and hopes of further stimulus by China supporting interest in mining companies.

Banks were again higher as investors adjusted to the revised trajectory for UK interest rates after the budget. London’s leading index was 0.6% higher at 8,228 at the time of writing.

NatWest was the top riser with a gain of 3% with BT and Frasers Group not far behind.

“After a difficult few days, the FTSE 100 got off to a steady start on Monday as resources and China-linked stocks made progress,” says AJ Bell investment director Russ Mould.

“Lawmakers in Beijing are sitting down this week to thrash out a big stimulus package to accelerate an economy which has been spluttering since the pandemic. Top of the agenda is addressing the issue of local government debt but also providing support to households who, unlike those in the West, received precious little support during Covid.

“This fiscal package is essentially what the market has been waiting for, ever since China fired the starting gun on stimulus in September. As ever, the devil is likely to be in the detail. 

“News that oil producers’ cartel OPEC+ would delay hikes in output through December helped give oil prices a lift and, in turn, provided a tailwind to heavyweight oil stocks Shell and BP.”

US Election

If anyone wasn’t aware, this week’s big risk event is the US election. A Trump victory is likely to be considered inflationary and damaging to international trade, ultimately culminating in a bearish tone for equities. A Harris victory and the avoidance of the risk presented by Donald Trump will almost certainly be seen as a positive and spark a relief rally.

However, while a consensus is building around the market playbook after the election, who actually wins is still anyone’s guess.

The Harris camp benefited from a favourable poll in a critical state over the weekend, but it is still too close to call.

“As Republicans and Democrats embark on a last-minute surge of campaigning, some of the big Trump ‘plays’ on the markets have lost ground. Investors are reassessing Donald Trump’s chances of re-entering the White House, given polls which emerged over the weekend, indicating Kamala Harris may have gained ground in key battle ground states,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

“The dollar has fallen back slightly, as the chances of Trump setting off a fresh tariff frenzy, pushing up inflation and interest rates, seem to have retreated a little. Bitcoin, which had also made strides of progress as markets priced in a Trump win, given his pro-crypto stance, has also continued to dip back. But this election is still far too close to call, so considerable swings in prices are likely as the results ebb in.”

The US will hit the polls tomorrow to vote in the 60th US election and end months of electoral razzmatazz and market uncertainty.

We have seen organisations, celebrities, and business leaders take sides as the election campaign heated up, but there is still no consensus on who will win on election day.

The Economist endorsed Kamala Harris, citing the untold risks of Trump winning a second term. Billionaire Elon Musk has become Trump’s chief cheerleader, presumably because Trump has promised tariffs that could increase Tesla’s competitiveness in the US.

There is a clear divide in opinion about who should win the election. This has been reflected in relatively benign market conditions in the run-up to the election. Traders have held off making big bets on financial markets, presumably because there isn’t a tradable indication of how it will go.

That said, traders will be all too aware of the potential market reaction as the election results are announced.

A Trump win will likely be bullish for the dollar due to his protectionist and inflationary policies. In contrast, a Harris win could spark a relief rally in stocks as investors cheer the removal of uncertainty around trade wars.

Who’s going to win the US election?

Calling which way this election will go is for either the very brave or very foolish. The polls have tightened over the past few weeks, putting Trump in the lead. However, shifts over the weekend could suggest Harris is now edging ahead. 

With an estimated 75 million people already thought to have cast their votes in the US, election watchers learned of possibly the most dramatic polling event of the election campaign over the weekend.

A poll by Des Moines Register showed Harris ahead of Trump in the critical state of Iowa, suggesting Harris could be set for a landslide.

Iowa is important because it’s historically been a stronghold for Trump, and he won the state even when he lost the overall election. It must be noted that it was a relatively small poll of over 800 people, but that hasn’t dampened the media or market reaction.

Iowa Poll: Kamala Harris leapfrogs Donald Trump to take lead near Election Day. Here's how https://t.co/4767zdTjyL via @DMRegister

— J. Ann Selzer (@jaselzer) November 2, 2024

Polls tend to be more accurate in the US than in the UK, where polling companies have lost credibility since the Brexit vote. However, there is still a degree of variability across the most recent US polls, leaving the race too tight to call.

Expected market reaction

The market reaction to the Iowa poll on Monday provides further evidence that a Harris victory would be a positive for stocks. US equity futures picked up from their worst levels following a sell-off late on Friday, with the Iowa poll dominating headlines.

“As Republicans and Democrats embark on a last-minute surge of campaigning, some of the big Trump ‘plays’ on the markets have lost ground. Investors are reassessing Donald Trump’s chances of re-entering the White House, given polls which emerged over the weekend, indicating Kamala Harris may have gained ground in key battle ground states,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

“The dollar has fallen back slightly, as the chances of Trump setting off a fresh tariff frenzy, pushing up inflation and interest rates, seem to have retreated a little. Bitcoin, which had also made strides of progress as markets priced in a Trump win, given his pro-crypto stance, has also continued to dip back. But this election is still far too close to call, so considerable swings in prices are likely as the results ebb in.”

A Harris win will likely create a bullish reaction for risk assets, primarily because it will alleviate risk around damaging trade policies promised by Trump.

Should there be any bullish reaction to the election, critical technical levels in the 5,773 regions must be overcome to open the doors back to all-time highs.

The level held after the Non-Farm Payrolls and the S&P 500 fell away from the level after the release on Friday.

#SPX500 testing THIS resistance after NFP bounce. Will it resume lower ahead of weekend/election risk?

More 👉 https://t.co/GpYTF58VEz pic.twitter.com/3AuH0pkAGY

— Fawad Razaqzada (@Trader_F_R) November 1, 2024

However, overcoming this first barrier shouldn’t be difficult post-election, considering some analysts predict a 200-point swing for the S&P 500 after the election.

$SPX is trading in a volatile range as the election approaches. The “election bump” in implied vol indicates about a 200-point $SPX move post-election. https://t.co/kbZzZqowG3 #StockMarkets #stockmarketupdate #optionstrading $VIX $SPY pic.twitter.com/MyaZH3loht

— Lawrence G. McMillan (@optstrategist) November 1, 2024

A Harris win could be a double-edged sword for UK large-cap stocks. Of course, the improvement in risk sentiment would be bullish for the FTSE 100; however, a weakening in the dollar and a strong pound may spark the inverse relationship between the FTSE 100 and the pound and cap any gains.

The FTSE 100 is dominated by dollar earners that are typically hit when the pound rallies.