The US stock market could be pushed even higher thanks to the US Presidential election, according to Russell Investments.
Speaking at a briefing in London on Wednesday David Vickers, senior portfolio manager at Russell Investments admitted that valuations were high in the US, but said a new President could usher in fresh economic stimulus which would provide a tailwind for US equities.
Andrew Pease, global head of investment strategy added that both Presidential seemed in favour of further stimulus for the US economy.
Pease explained that Democrat Party candidate Hilary Clinton would like to increase spending on infrastructure, while Republican candidate Donald Trump does not favour fiscal austerity.
“Trump would be more likely to push further government spending,” Pease said.
But added: “I struggle to see how you can get good long term value from the US stock market as it is very expensive.”
Pease said that earnings since the start of the year had been “quite poor” due to a huge drag from the energy sector.
“US stocks could become more expensive, but as an investor that is not something I would like to chase, I would rather wait for those stocks to become more reasonable valued,” he said.
Which Sectors Will Benefit Most?
Vickers said that while US politicians did not have a direct impact on the stock market their policies could affect particular sectors of stocks. Healthcare stocks, for example, face growing cost pressures as Clinton has proposed more drug price controls.
He added that if Trump was elected this could lead to market volatility as investors responded to his “unusual views”. However, Vickers noted that as Trump has become a “serious candidate”, he has become more cautious about what he said.
Low Probability of Fed Rate Rise
Data released from US indicates that the economy is getting stronger; the US economy created 287,000 in June, recovering strongly from disappointing figures in May. Despite this stellar figure, the direction of the US dollar and international concerns mean the economists expect Federal Reserave Chairman Janet Yellen leave any interest rate hike until at least the end of the year.
Keith Wade, chief economist at Schroders said that a closer look at the data revealed the US’s average hourly earnings rose less than expected to 2.6% year-on-year and the unemployment rate ticked up to 4.9%.
“Where does this leave the outlook for US interest rates? Last month’s payroll report removed any hope of a June rate rise. Since then, the increase in volatility post Brexit has left the Federal Reserve’s decision not to tighten look prescient,” Wade
“Markets have subsequently gone on to price out any rate rise for two years. The June jobs report restores some balance by reminding us that there is life in the US economy and that the Federal Reserve may have to consider a rate rise before the year is out."
Luca Paolini, chief strategist at Pictet Asset Management expected the US central bank would leave interest rates on hold at least until next year – saying that this would prove supportive to riskier asset classes.
“A more dovish monetary policy, is supportive of credit, particularly corporate high yield. We are lifting our exposure to US high yield bonds and are also shifting to an overweight on European high yield debt from neutral,” Paolini said.
“The shift in the Fed’s thinking is likely to be positive for emerging market debt. While we remain overweight emerging market dollar bonds, for now we stick to our neutral stance on emerging market local currency debt, as developing world currencies could prove volatile in a shifting political landscape.”
