The US – Feature
The US appears to be in turmoil, politically and economically, leading some to ques- tion if it is still exceptional. But all is not lost for investors, says Andrew Holt.
The US faces unprecedented uncertainty. Take the political pic- ture. Come November next year Donald Trump could return to the White House, or, he could be in jail. That is a stark and truly unparalleled difference. Then there is the economy. The US economic outlook has con- tinually shifted. In chronological order, the outlook has gone from soft landing to hard landing, no landing, crash landing, hard landing and now, it seems, a soft landing again. But then there are added twists: such as the time lags between the Fed’s aggressive rate hikes and the impact on the economy. With some suggesting the US could yet tip into a recession. This makes the US outlook unpredictable to say the least. That said, indications suggest third quarter growth is doing nicely, thank you very much. Hardly putting the US on the precipice of a recession, but it is adding to the uncertain picture.
What are investors to make of it all? Let’s take the political cha- rade first. Will the Trump and Biden show have an impact on investors? Jack Janasiewicz, lead portfolio strategist at Natixis Investment Managers, is unperturbed. “It’s challenging to opine on mar- kets this far out ahead of a presidential election. The obvious issue is we don’t know who the candidates will be and what their agenda will look like,” he says.
The big fight
Indeed, while a straight fight off between Biden and Trump is expected, it is not inevitable. Given that while the incumbent
president, Joe Biden, will seek re-election, there is the potential for health issues preventing this from happening. In particu- lar, his embarrassing gaffes have become a daily occurrence. Then running against him, the Republican nominee, based on polling, will be Donald Trump. But on-going legal troubles continue to cloud this backdrop. It may prevent him from ac- cepting the Republican nomination.
If this ends up being the case, the American political system could go into meltdown, given the strong support Trump main- tains through a proportion of the American population. Richard Tomlinson, chief investment officer at Local Pensions Partnership Investments, ponders what it could mean from a geopolitics perspective if Trump was to return to the White House next year. “There will be challenges, for sure,” he says. “How might this impact the China-America relationship? What impact could that have on investment opportunities?” It is worth remembering that when Trump won the presidency in 2016, the S&P500 jumped by 12%. In recent history, the big- gest fillip to the S&P by a presidential election was when Bill Clinton won his second term in 1996, which resulted in a 23% boost. The worst came when Barack Obama was elected presi- dent for the first time in 2008, which resulted in a dramatic drop of 37%, according to Morningstar.
Winners and losers
When it comes to the run up to the election itself, it poses neg- atives and positives for Tomlinson. “The election creates prob- lems and opportunities,” he says. “Governments and politics
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