November 2018
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US mid-term election results likely to see market rally

7 November 2018

The results of the midterm elections are likely to trigger a bounce in the US and global financial markets, according to deVere Group.

The rally, the group said, would be the result of the relief that President Trump’s penchant for waging trade wars will be limited by the Democrats taking control of the House of Representatives.

Nigel Green, founder and chief executive of deVere Group, commented: “The Democrats gaining control of the House of Representatives is likely to drive a rally in US financial markets into the year-end. This bounce can also be expected to positively impact global financial markets given the high correlation between Wall Street and risk assets elsewhere.”

However, Green cautioned that the rally will be short-lived as it could be offset by “legislative gridlock” in Washington, which could halt deregulation legislation and hit sectors including banking, energy and industrials as well as smaller companies that stood to benefit most from looser controls.

According to Green: “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.”

He continued: “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.”

Looking ahead, Adrian Lowcock, head of personal investing at Willis Owen, warned that the debt ceiling could come back into focus in the summer of 2019 as the Democrats “look to use the opportunity to get some concessions from the Republicans,” and industries such as financial services, pharmaceuticals and retailers may come under additional scrutiny.

He added: “Overall, history suggests that the US market has performed well in the 12 months following the mid-term elections and now they have passed, focus will shift back to the economy and company fundamentals. The crucial point here is that the US economy continues to grow and consumer confidence remains strong, having surged to an 18-year high in October.”