The S&P 500 is near all-time highs. One possible reading of the current market mood is that investors are already pricing in a continuation of the status quo, but that interpretation seems rather premature. Many things could still change during the presidential campaign.
The three theses of Stefan Kreuzkamp, Chief Investment Officer Deutsche Asset Management.
1. IT'S THE CONGRESS ELECTION THAT COUNTS
For financial markets, the fundamental question is not who will move to the White House, whether Hillary Clinton or Donald Trump, but rather who will control the House of Representatives and the Senate. The presidency of the United States may still be the most powerful position in the world – except in foreign policy – but there is little a president can do without the support of Congress. When things matter most to investors, Congress holds the purse strings.
2. IT IS UNWISE TO MAKE LONG-TERM INVESTMENT DECISIONS BASED ON HAVY ELECTION PROMISES
Generally speaking, it takes nearly a year for a new president's team to firmly take the reins. By the time the new administration finally kicks in, the world has usually already moved on. Priorities change and events tend to derail even the most openly stated ambitions. In 2000, George W. Bush presented himself as a "compassionate conservative" and promised to avoid foreign entanglements, but history turned out differently. The sheer logistical aspects of installing a new administration are incredibly taxing, and this time the challenge may seem especially overwhelming for Donald Trump. Unlike previous new presidents in similar embattlements, Trump does not have a widespread network of contacts among political nerds in and outside Washington. This simple reason could be enough to create uncertainty in the financial markets after a Donald Trump victory.
3. THE TRUMP EXPERIENCE COULD CHANGE THE POLITICAL-ECONOMIC SITUATION IN THE UNITED STATES FOREVER
The era of Republican circles influenced by pro-market ideas now seems to be nearing its end. Trump's candidacy has already severely eroded Republican support for free trade, once a tenet of Republican politicians. For the past thirty-six years, Republicans have sought to reliably pursue market-oriented supply-side policies while being pragmatic about countercyclical spending in times of economic distress. It is not certain that this path will continue. A Trump victory could, for example, fuel pressure from Congress to limit the Fed's room for maneuver. But even if Trump loses, others could use his program. Likewise, Bernie Sanders' insurrection has pushed Hillary Clinton to the left. It remains to be seen whether the Democratic candidate will be able to take the necessary steps to ensure a mandate of business-friendly policies, in line with those pursued by her husband.
Attached is the complete document and a photo of S. Kreuzkamp.
Attachments: Deutsche AM CIO Special US Elections
