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USA: Still the right choice for investors – J.P. Morgan AM column

“Political stock exchanges have short legs” is the common saying – the effects of political events on the stock markets are usually short-lived. According to Tilmann Galler, capital market strategist at J.P. Morgan Asset Management in Frankfurt, but from an economic point of view definitely the character of a choice of direction. After all, for the next US president it is not only important to cope with the consequences of the pandemic and to deal with the social conflicts. The relationship with China will also continue to be in focus. But according to Tilmann Galler, which party the US president belongs to is less decisive than who has the majority in the two chambers. For investors, Galler gives a very simple piece of advice: be invested.

Those who have power over both chambers can shape their economic policy

With regard to who is in power in the US and what impact that can have on the capital markets, there is one remarkable observation: “If we look at the history since 1948, it shows that the S&P 500 has performed at least two on average Percent per year was higher when a party won both the White House and both chambers of Congress, ”says Tilmann Galler. And it is precisely there that the decisive battle will be fought on November 3rd with a view to the capital markets. “Only if the future president has the support of the Senate and the House of Representatives can he implement his economic policy ideas. If this does not succeed, the risk for the US economy increases due to a politically motivated blockade policy, ”adds the capital market expert.

What Trump and Biden have in common: economic development through debt

Interestingly, despite considerable differences in the future social and economic orientation of the USA, both candidates have one thing in common: “Both Donald Trump and Joe Biden are ready to finance their ambitious economic development with even more debt,” says Tilmann Galler. Both stimulus programs are estimated to be in the order of $ 5 trillion net over the next 10 years. “In both cases this is good news for economic growth, but bad news for the government bond markets, as the need for financing will increase significantly in the future. Trump wants to strengthen the economy through tax cuts and investments in infrastructure, while Biden’s focus is on additional spending in education, health, social security and infrastructure, which is partially financed by tax increases, ”analyzes Galler.

The result of the presidential election could definitely bring about changes for the individual industrial sectors, especially with regard to the subject of regulation. While Joe Biden advocates stronger regulation of the energy industry and financial companies, the incumbent is betting on further deregulation in both industries. The consumer and health sectors, the construction industry and renewable energies, on the other hand, are likely to benefit most from Biden’s spending program.

Investors should be invested and rely on long-term prospects for stocks

According to Tilmann Galler, investors should take to heart that even if some political and economic parameters change from November onwards, the impact on the stock markets is usually moderate and short-lived: “Fundamental trends will set in the industries in the medium to long term and companies and usually dominate political measures. ”The best example of this is the last presidential election in 2016. The obvious beneficiaries of Trump’s surprise victory at the time were the energy and financial sectors, which also did better than the broader one in the first month after the election Market developed. “But luck only lasted a short time. Today, almost four years later, energy stocks have lost 50 percent of their value, while financial stocks were still able to gain just under 18 percent. Both sectors lag behind the S&P 500 with 66 percent and even more clearly behind technology stocks with a performance of over 170 percent. The structural trend of the digital revolution and Industry 4.0 has dominated any political tailwind in other sectors, ”explains Galler.

With a view to November, the expert believes that the right choice for the portfolio is to be invested in US stocks at all, and not to lose sight of the positive long-term prospects of stocks despite heated headlines and short-term risks.

Tilmann Galler, Executive Director, CEFA / CFA, works as a global capital market strategist for the German-speaking countries at J.P. Morgan Asset Management in Frankfurt. As part of the global “Market Insights” team, he creates and analyzes information about the global financial markets on the basis of extensive research and derives implications for investment strategies. He has 19 years of professional experience in the financial sector and previously worked as a portfolio manager.

Disclaimer: The text is a column of the JPMorgan Asset Management. 4investors is not responsible for the content of the column and therefore does not necessarily have to agree with the opinion of the 4investors editorial team. Any liability and claims are therefore expressly excluded by 4investors!

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