John Redwood: Why a repeat of the 2019 share price 'surge' is unlikely
The US stockmarket has been hitting new highs. It is election year, so investors are often looking on the bright side.
They expect US President Donald Trump to do everything possible to stimulate the US economy and keep the recovery going.
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They see the Federal Reserve is keeping rates lower for longer and has been putting money into markets by buying up Treasury bills to help the banking system.
The tax cuts put through when Republicans controlled the Congress mean more are willing to repatriate profits and invest at home, while the deregulations in banking and energy have boosted US oil and gas output and helped fossil fuel using industry.
Individual investors may have their reservations about some of the President's actions, and some may dislike him more generally, but overall the markets think Trump may win a second term and this means continued lower taxes and a relatively benign outlook for business.
Investors did not like the trade war with China and are relieved there was a partial settlement, which has removed the threats of more tariffs for the time being.
The Democrats are having a long battle over what philosophy and message they wish to put to voters this year. Their primary elections to see who should emerge as the Presidential candidate have swung wildly from backing the more moderate Joe Biden to now giving the lead to radical Bernie Sanders.
On current polling, it is going to be some time before a clear frontrunner emerges likely to win. The latest polls show Sanders in the lead, but only on 22%-24%.
The moderate vote is split between Biden and Mike Bloomberg, both on a little under 20% each.
Sitting below them are Elizabeth Warren and Pete Buttigieg, both bout 12%; one a radical, the other a moderate.
It looks as if the moderates command more votes overall, but they remain very split. The radicals want a strongly anti-business agenda, with a big increase in the role of the state, large tax rises and a transfer of wealth from existing shareholders, large companies and rich people.
The moderates also want tax rises for the rich, a higher corporation tax rate and some expansion of state spending.
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Meanwhile, the high level of the market is subject to shocks such as the impact of the coronavirus, as well as the growing attempts to tax and regulate the successful US technology businesses more.
It is difficult to imagine another big surge in share prices this year like last year.
John Redwood is chief global strategist for Charles Stanley
Bull Points
• Election year optimism
• Markets expect Trump to win
Bear Points
• Democratic vote split
• Difficult to imagine another big surge in share prices this year
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