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9th November 2018
Markets will rally on US midterms, albeit briefly, says deVere
The US midterm elections result that has handed control of the lower house to the Democrats is likely to trigger a US and global financial markets bounce, on relief that President Trump’s scope for waging trade wars will be limited by a divided Congress. But gridlock in Washington will stall the White House’s bid to deregulate banking and industry, so limiting the relief rally.
Meanwhile, the Democrats gaining control of the House of Representatives is “unlikely to bother President Trump too much”. This is the analysis from Nigel Green, founder and chief executive of deVere Group.
“The Democrats gaining control of the House of Representatives is likely to drive a rally in US financial markets into the year-end. This US bounce can also be expected to positively impact global financial markets, given the high correlation between Wall Street and risk assets elsewhere.
“However, it can be reasonably assumed that this rally will be relatively short lived as it could then be offset by legislative gridlock in Washington. This will halt deregulation legislation, which in turn will hurt sectors such as banking, energy, industrials, and smaller companies that stood to gain most from looser controls. Pharmaceuticals may suffer as the Democrats seek to bring down drug prices.
“The gridlock also means that fiscal policy will largely be maintained as it is, with no significant changes to spending or taxation. Portfolio diversification is the best way for investors to mitigate risks and take advantage of the opportunities that present themselves.
“Indeed, investors’ portfolios should be diversified enough to see any market outcomes as an opportunity. A well-diversified portfolio should always include several industrial sectors and asset classes, as well as geographical regions.
“This might look like a defeat for Donald Trump, but the reality is that he might not mind losing the House of Representatives too much. In this situation he could feasibly then attribute blame towards the Democrats should the economy falter and they refuse to pass more tax cuts to boost demand.”