As the most exciting US Presidential race in decades reaches its conclusion, three fund managers from Pioneer Investments give their views on the implications for different asset classes.
Implications for US equities: Marco Pirondini, head of equities, US
Do you expect volatility in US equity markets to rise as we approach election day?
Market volatility is likely to increase as we get closer to the election in November, not for any particular economic reason, but mostly due to tactical trading games by short-term investors.
How do you expect the market to react after the election?
Most market participants seem to be more comfortable with a Hillary Clinton win and more concerned if Donald Trump emerges on top. A Trump win would represent change and be unpredictable, while a Clinton win, to a large degree, represents the status quo.
What are your views on the investment implications for a Clinton and Trump presidency?
The biggest difference between the two candidates may be that a Clinton presidency would mean higher taxes, more regulation and increased social spending which, overall, would be a drag on economic growth. The continuation of a low-growth and low-inflation environment would generally support investment approaches based on dividend yield, stable businesses and low volatility.
On the other hand, Trump's agenda, if enacted, would probably end up being inflationary and bearish for income-related investments. A Trump victory would likely be favourable for cyclicals, but less favourable for interest-rate sensitive sectors such as utilities, staples and real estate.
How important will the outcome of the election be on US equities?
To paraphrase James Carville, lead strategist to ex-president Bill Clinton: "It's all about the earnings, stupid." Corporate profits in the US have been under pressure for the past two years and have contracted modestly, making sustainable economic growth more difficult.
Monitoring corporate profits will be paramount going forward. One positive is that the headwinds of a strong US dollar and the severe drop in the price of oil are behind us and the earnings recovery is picking up. Volatility and market corrections could offer interesting opportunities in US equities.
On the other hand, nominal GDP growth, both in the US and globally, remains anaemic. Therefore, a robust understanding of fiscal and economic policies is also important in determining the direction of the markets.
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