For once, stocks got it right

In­vestors happy to see a bit of bor­ing, pre­dictable pol­i­tics this year

The Star Malaysia - StarBiz - - Foreign News -

NEW YORK: For once, the con­sen­sus came true. Mar­kets got it right and no vi­o­lent repric­ing in eq­ui­ties was needed.

A di­vi­sive episode of US pol­i­tics came and went, and in­vestors are ex­actly where they were be­fore. The ques­tion for bulls: can it ac­tu­ally last?

“This was our base case,” said Ben Phillips, chief in­vest­ment of­fi­cer of Even­tShares, which over­sees the US Pol­icy Al­pha ETF.

“As far as mar­kets are con­cerned, it is ac­tu­ally a de­cent out­come.”

Per­haps. Bulls can cel­e­brate grid­lock, at least, a moder­ate pos­i­tive in cy­cles past. They can be en­cour­aged that some­thing other than a Repub­li­can sweep is be­ing taken in stride by fu­tures. The econ­omy is in­tact. And noth­ing that hap­pened Tues­day will al­ter Pres­i­dent Don­ald Trump’s big gift to bulls, a tax cut that made 2018 one of the best years for profit growth ever recorded.

“I know it may be a bit of a let­down from a news per­spec­tive, but most of us on the in­vest­ment side are happy to see a bit of bor­ing and pre­dictable pol­i­tics this year,” said Max Gokhman, head of as­set al­lo­ca­tion for Pa­cific Life Fund Ad­vi­sors.

Still, ques­tions re­main. How long can any peace per­sist in a mar­ket that be­fore this week spent a month go­ing up and down 2% a day? The elec­tion is over, one type of un­cer­tainty is sub­dued. But for eq­uity bulls who watched as their favourite stocks got pum­melled by forces that went be­yond pol­i­tics in Oc­to­ber, it’s an un­easy truce.

“This is­sue, thank god, is be­hind us,” said Don­ald Selkin, chief mar­ket strate­gist at New­bridge Se­cu­ri­ties, said in an in­ter­view. “But the other is­sues are out there.”

Fu­tures on the S&P 500 were up about five points as of 11:02 pm in New York, shortly af­ter Bloomberg News said Democrats would win the House but not the Se­nate. It was a stark con­trast to last week, when eq­ui­ties fin­ished their worst monthly plunge since 2011.

That’s the is­sue for in­vestors, though – that an end to elec­toral strife doesn’t en­sure an end to ev­ery­thing else that tore at in­vestor nerves last month, when US$3 tril­lion was erased from shares. The Fed­eral Re­serve is still rais­ing rates, Trump’s trade war shows no sign of eas­ing, and lit­tle will ar­rest the gnaw­ing sense the econ­omy’s best days are be­hind it.

Add to that a more ab­stract threat – “tweet risk”, it’s been called – the pos­si­bil­ity that a recharged op­po­si­tion will turn the screw on Trump’s vul­ner­a­bil­i­ties, pro­vok­ing the pres­i­dent into an even more war­like pub­lic pos­ture than he al­ready presents. It’s an un­sa­vory thought for any­one who traded through the pres­i­dent’s pre- and post-mar­ket pro­nounce­ments as his tar­iff threats ramped up.

On elec­tion night, most in­vestors were happy to put those con­cerns aside. The econ­omy may be peak­ing, but for now it’s hum­ming along at a 3% clip. Earn­ings growth will slow, but earn­ings aren’t: the es­ti­mate is for 10% gains in each of the next two years. How bad could things be, when af­ter fall­ing 9% in Oc­to­ber, the Nas­daq 100 is still up 9% on the year?

Even more: in the past 18 midterm elec­tions, stocks have gained from the Oc­to­ber lows through the end of the year ev­ery sin­gle time, ac­cord­ing to LPL Re­search.

One op­ti­mistic spin holds that Oc­to­ber wasn’t an iso­lated event that was sep­a­rate from pol­i­tics. It was pol­i­tics, the the­ory goes – the elec­tion out­come pric­ing it­self in a month in ad­vance. Un­der that in­ter­pre­ta­tion, bulls can take so­lace: the Dow Jones In­dus­trial Av­er­age’s 2000-point cor­rec­tion was the price stocks had to pay for a Repub­li­can set­back.

At Apriem Ad­vi­sors in Irvine, Cal­i­for­nia, chief in­vest­ment of­fi­cer Ben­jamin Lau low­ered cash to 15% from 20% just be­fore this elec­tion, buy­ing fi­nan­cial and in­dus­trial shares to take ad­van­tage of cheaper val­u­a­tions.

— AP

Mar­ket poser: How long can any peace per­sist in a US stock mar­ket that be­fore this week spent a month go­ing up and down 2% a day?

Newspapers in English

Newspapers from Malaysia

© PressReader. All rights reserved.