The US – Feature
US political system has prevailed. Although they have been se- verely tested at times. It is this system of checks and balances that prevent a signifi- cant deviation from current polices that can upset the apple cart from an economic perspective and create real uncertainty for investors. “Sure, we have seen the power of fiscal spending more recently but monetary policy still remains largely independent, despite what some may argue,” Janasiewicz says. Although how much fiscal latitude Washington has going for- ward given that the deficit has been a hot button issue will remain critical. “How the economy evolves from now until election day will be key in terms of opportunities or challenges towards investing,” Janasiewicz says. He adds that he doesn’t expect much to change in terms of eco- nomic drivers from the US political backdrop in the run-up to the election next year. “Rather, chair Powell and the Fed are the more important inputs. Inflation, the labour market and growth prospects all carry a far heavier weight than the debates or polling.”
Campaigning hot air Putting some numbers to the impact of US elections on the market, it is interesting to note that there have been 23 elec- tions since the S&P500 began. In these election years: 19 of them (83%) provided a positive performance. Which bodes well for investors.
When a Democrat was in office and a new Democrat was elected, the total return for the year averaged 11%. When a Democrat was in office and a Republican was elected, the total return for the year averaged 12.9%. Based on these numbers, investors have little to fear.
Another issue to consider in the run up to election is the nature of political campaigning itself and its overall impact. Cam- paigns almost always increase the noise leading up to an elec- tion: it is its job after all. But the noise often outweighs the substance, with candidates frequently outlining in their stumping policies that often get watered down or sometimes lost, but rarely get implemented as promised. So the concern for markets the debates often throw up can be dismissed frequently as hyperbole. Janasiewicz defines the real players in the US political environ- ment. “The president and Congress can certainly help in pro- viding a fertile background in which businesses operate. But aside from this, the impact is somewhat muted,” he says. “The economy matters more and the political backdrop has far less of influence here than most give credit.” Here we return to the favourite maxim of Bill Clinton’s adviser James Carville: It’s the economy stupid.
Exceptional America
There could also be another explanation for what is happening in the US. Richard Tomlinson puts the potential parlous posi- tion of America in a wider perspective. “It is about America exceptionalism. It is about one question: Is America still exceptional?”
So far in 2023, equity markets have shrugged off banking stress, recession risk and monetary tightening in favour of a more
optimistic view. Raffaele Savi, Blackrock
This puts into question America’s position in the world, one where it could well be no longer the hegemonic political and economic kingmaker: a position it has held since the Second World War. This has implications far beyond the 2024 US presidential election. “Some are saying the era of America exceptionalism is coming to an end. But there are pretty good reasons why that is not the case,” Tomlinson says. “Being the world’s dominant reserve currency gives you a massive privilege. The US is also still the major superpower. Until that changes, America will remain appealing as a relatively stable and dynamic market.” It is true that, despite all the noise surrounding the election, the US market is hardly in decline. This is seen through the so- called ‘super-7’ US stocks: Apple, Microsoft, artificial intelli- gence specialist Nvidia, Amazon, Meta, Tesla and Alphabet, which now make up more of the global equity index (MSCI ACWI) than the whole stock markets of Japan, the UK, China and France combined. That screams strength not weakness. Bringing all arguments back to the market, Tomlinson offers a straightforward and balanced assessment to the impact of the US election and its position in the world as the leading nation.
“If you look at some US stocks, it maybe does look ominous in some areas. And the US does face some significant challenges. There is no doubt about that,” Tomlinson says. “But we are not seeing the end of America anytime soon.”
Issue 127 | October 2023 | portfolio institutional | 23
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