Investors should be focusing more on company fundamentals than on the outcome of the US Presidential Election, according to Wouter Sturkenboom, senior investment strategist, EMEA, Russell Investments.
In a statement released by Russell Investments today, Sturkenboom said that he believes that corporate earnings are more likely to drive markets in the short term.
“While it may be too early to discount the impact of the outcome of the U.S. election, we are confident that the results are unlikely to drive the markets,” said Sturkenboom. “We remain focused on the fundamentals of the US stock market, the growing economy, earnings and valuation.
“The election is important, but when it comes to the markets, our attention is more squarely focused on US corporate earnings and if they can reaccelerate as quickly as current expectations. Ultimately, this is likely to factor much more into market activity and expectations than the election.”
Sturkenboom believes that fiscal spending to remain a small tailwind for growth, regardless as to who becomes President in November. He points that the US economy is struggling with the distribution of wealth and believes that the Fed’s policy tools are too blunt to address the problems in their current format.
“Fiscal policy is likely to be a small tailwind for growth, no matter who becomes President in November,” he added. “Both Clinton and Trump (pictured above) are proposing new infrastructure spending programs, among other things, that could support the productive potential of the economy over the longer run.
Onus remains on the Fed to support growth
“However, the President’s power to pass a significant stimulus program through the fiscally conservative House of Representatives could prove difficult. So the onus will continue to fall on the Fed to support the U.S. economy and further hikes appear to be warranted soon,” he said.
In the long-term, however, Sturkenboom summarises, the Fed is concerned that it will be constrained by the zero lower bound for interest rates more frequently, meaning it is thinking about new and innovative ways to support growth over the longer-run.
“The ideas of a higher inflation target or nominal GDP targeting, once considered far-fetched in Fed circles, have featured more prominently in recent years,” he added.