Time to look for new opportunities.
The mid-term elections revealed few surprises, but rather confirmed the deep divide in the US political landscape. President Trump and the new House majority may enter a period of simultaneous conflict and cooperation, with the race to the 2020 presidential election already begun.
Against this backdrop, there is little reason to see major changes in the US policy, especially with regards to the trade dispute with China.
The US may not be the only problem for markets in the short run, which will also remain concerned about :
- The prospect of slower growth overall next year ; and lower profit growth after a record year as the impact of tax cuts fades ;
- Increasing signs of a marked slowdown in the Chinese economy as the public measures undertaken over the summer to prop up the economy have failed to produce any result so far ;
- Further rate hikes by the Federal Reserve and a general tightening of credit conditions ahead.
- In Europe, mounting risks over Brexit and the confrontational Italian budget, may create still more jitters.
At the same time, the moderation of oil prices, with the prospect of slowing headline inflation will support consumers purchasing power in the coming quarters. With unemployment rates at low levels, and the ongoing underlying transformation trend of our economies, there is still room for investment and productivity improvements.
We are certainly heading for a slower pace of activity, globally, converging back to closer to potential growth trends.
The recent correction in the markets, may therefore constitute an opportunity to look for value stocks and longer term investment opportunities in new technology. With more volatile markets, why not hedge tail risks too ?
November 11, 2018