Skip to main content

Election Season Playbook: How Corporate Treasurers Can Manage Uncertainty

CDFIsCNote

As the U.S. approaches another election cycle, corporate treasurers are prepared for a period marked by heightened uncertainty and cautious decision-making. Election periods often bring the potential for significant policy shifts, market volatility, and broader economic disruptions, making it crucial for treasurers to adopt a proactive approach to managing financial risks.

A Time of Pause for Corporate Treasurers

Election periods are commonly seen as a time of pause for corporate treasurers. The uncertainty surrounding potential changes in fiscal and monetary policies—such as adjustments in tax rates, regulatory shifts, and trade policies—can create a challenging environment for long-term financial planning. This is particularly true during closely contested elections where the outcomes and subsequent policies are highly unpredictable.

Treasurers typically respond to this uncertainty by tightening liquidity management, reassessing their hedging strategies, and delaying large capital investments. This approach helps protect their organizations from the potential economic instability accompanying election-related market reactions ​(KPMG).

What to Expect in the Coming Days

As the U.S. election draws nearer, treasurers should be mindful of the following:

  1. Increased Market Volatility: Elections often lead to heightened financial market volatility as investors react to the potential for policy changes. Indicators like the VIX index, known as the “fear index,” frequently spike during election periods, reflecting increased uncertainty about future financial conditions ​(KPMG).
  2. Economic Policy Uncertainty: Election periods can drive significant increases in economic policy uncertainty, which affects corporate business and investment decisions. Historically, U.S. policy uncertainty has been highest during election years, particularly in closely fought or highly polarized races. This uncertainty can lead to delayed business decisions as treasurers and executives wait for clearer policy signals ​(KPMG).
  3. Liquidity and Risk Management: To manage the risks associated with potential economic disruptions, treasurers are likely to focus on maintaining strong liquidity positions and refining their risk management frameworks. This involves close monitoring of cash flows, enhancing liquidity buffers, and stress-testing financial models against various election outcomes and their potential impacts on interest rates, currency fluctuations, and commodity prices​ (Chatham Financial, CTMfile).
  4. Scenario Planning and Strategic Flexibility: Treasurers are increasingly relying on scenario planning to anticipate and prepare for a range of possible election outcomes. By modeling potential policy changes, such as adjustments in corporate tax rates or new regulatory measures, treasurers can better position their organizations to respond effectively to shifts in the economic landscape ​(Citi).

Preparing for Election-Related Uncertainty

To navigate the complexities of the U.S. election period, corporate treasurers should consider the following strategies:

  • Stay Informed: Regularly monitor key economic indicators, policy developments, and market trends to stay ahead of potential changes that could impact financial strategies.
  • Engage Stakeholders: Ensure open communication with senior management and stakeholders, providing regular updates on potential risks and aligning on strategic responses.
  • Adopt Proactive Planning: Utilize scenario planning, stress testing, and advanced analytics to prepare for a variety of potential outcomes, enabling the organization to remain agile and resilient amid uncertainties.

By staying informed and adopting a proactive approach, corporate treasurers can effectively manage the challenges of the U.S. election period, ensuring that their organizations are prepared for whatever outcomes may arise.

This information should not be relied upon as research, investment or financial advice, or a recommendation regarding any products, strategies, or any security in particular. This material is strictly for illustrative, educational, or informational purposes and is subject to change. Investing involves risks, including possible loss of principal. The information does not purport to provide any legal, tax or accounting advice.

Ready to invest with your values?

Get Started