Given the unreliability of polling, markets will wait for tangible results before reacting. The composition of congress will be the first concrete signal, with a divided or right-leaning legislature seen as a positive check on executive power. This could trigger currency rallies well before the final presidential outcome is known.

The US government's focus on economic indicators has made the S&P and NASDAQ the primary arbiters of an administration's success. As long as the market is performing well, a president feels empowered to pursue controversial policies without significant pushback, as economic prosperity mutes corporate and public outrage.

A speaker argues that President Trump's low polling numbers are paradoxically bullish. The political pressure forces him to take drastic, market-friendly actions, such as de-escalating foreign conflicts and stimulating the economy, to improve his standing before the midterm elections.

The sectors that outperform in the initial year of a new presidential administration can provide a roadmap for market trends over the subsequent years. This political-macro overlay suggests focusing on current leaders, like metals, for sustained performance.

Brazil's next election presents a major catalyst. An opposition win would likely unlock pent-up investment and allow high real interest rates to fall, creating a virtuous cycle. Conversely, a win for the incumbent party would likely keep rates higher for longer, suppressing growth and investment.

The extreme divergence in market returns between strong presidential years and weak midterm years from 1962-1982 was driven by populist political cycles. This pattern is re-emerging, as seen in 2022's sharp drop and 2024's strength, because the same underlying political forces are now at play.

With the exception of Brazil's BRL, investor positioning in Latam currencies is not over-extended. This means the magnitude of currency moves should be similar in either a government continuity or transition scenario, creating a balanced risk profile rather than a one-sided vulnerability to a specific political outcome.

Despite alarming geopolitical headlines concerning Venezuela, Iran, and US-NATO relations, emerging markets are showing resilience. Investors are largely ignoring this "noise," focusing on the strong cyclical backdrop: upward growth revisions, loose financial conditions, and supportive commodity prices. Markets are prioritizing the global economic outlook over political shocks unless those shocks directly threaten growth.

Despite political polarization, FX volatility is expected to be less than half of the 20% depreciation seen in the last cycle. This is due to a less tense social fabric, more moderate economic agendas, and strong institutions that have proven effective at limiting executive power and radical reforms.