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Elections, Brexit, Trump. What is the biggest risk to your stock portfolio as we head into 2020?

Jonathan Smith
Businessman pulling out wooden brick from toppling stack

If you take a step back from the day-to-day movements in the stock market, it is worth thinking and analyzing about some of the larger risks (and potential opportunities!) that are on the horizon.

Certainly, it is impossible to perfectly predict the outcome of events, let alone the impact that it might have on the stock market! However, this does not mean that you should throw your hands in the air and shrug your shoulders. Thinking logically and digging a little deeper can help prepare you for the coming months.

Elections

There are two major elections that we in the UK will be focused on. First, there is the general election in the UK on Thursday 12 December. With campaigning just beginning, expect to see a lot more focus on it in the coming weeks.

Is this a big risk to the FTSE 100? Potentially. It all depends on the outcome of the election, and the pledges the winning party makes. For example, if the Labour Party win, with Jeremy Corbyn as Prime Minster, we could see the market fall.

This is because of rumours that he wants to renationalise some previously state-owned companies, as well as levy additional taxes on financial services and higher income tax rates for higher earners.

The second election is in the US next November. This is still far away and so is not a major risk at the moment, but see below for some thoughts on Donald Trump and how he can shake the markets.

Brexit

I could not write a piece on key risks for next year without including some comments on Brexit. Yes it is still a risk to the FTSE 100 and your portfolio for next year. While for the moment it appears that a ‘No Deal’ is off the table, until an actual deal is signed there is always a potential of crashing out of the European Union without one.

The stock market would take this negatively, although some select exporters could benefit from a likely fall in the value of the British pound (GBP) at the same time.

Trump

President Trump has the power to move the stock markets with one tweet, something we have seen many times over his presidency. This does not just affect the US stock markets but also the FTSE 100.

His comments and policies have a global impact.

For example, look at the trade war between the US and China. This ongoing tariff spat between the two is negative for the global economy. With many companies listed on the FTSE 100 being truly global players with strong links to China, the US, or both, this is a big risk.

Until the November 2020 US election is out of the way, I would be careful about exposure to companies with links there.

Overall, I see the biggest upcoming risk as the UK election, as a win for any party except the Conservatives could see a shift in policies, which could upset the market.

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Jonathan Smith and The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2019