atans1

PAP got a point about election uncertainity

In Uncategorized on 23/07/2016 at 1:39 pm

Last GE was the only GE in which I don’t recall the PAP saying that a less than empathic victory would drive away foreign invrstors. I guess they realise that that line no longer works.

So it was interesting that I read the u/m in NYT Dealbook about the US markets and election uncertainity:

ELECTION YEARS ARE STEEPED IN MARKETS’ LEAST FAVORITE THING, UNCERTAINTY What explains the lack of deals and initial public offerings, the volatile stock markets, cuts in company spending and stalling gross domestic product? Perhaps it is Hillary Clinton and Donald Trump, Andrew Ross Sorkin writes in his DealBook column.

A growing body of research shows that during presidential election years industry becomes almost paralyzed. Big corporate investments are postponed and bid deals are put on the back burner. The research is even more persuasive for the final year of an eight-year presidential term, when a new candidate will inevitably become president.

Since 1928, the Standard & Poor’s 500-stock index has fallen an average of 2.8 percent during election years where the incumbent is not seeking re-election, according to research by Stephen Suttmeier, a technical analyst at Bank of America Merrill Lynch Global Research. The final year of an incumbent’s eight-year term was the only year that averaged negative returns.

“Election outcomes are relevant to corporate decisions, as they have implications for industry regulation, monetary and trade policy, taxation, and, in more extreme cases, the possible expropriation or nationalization of private firms,” Brandon Julio, a professor at the London Business School, wrote in the Journal of Finance. Mr. Julio and his co-author, Youngsuk Yook of the Federal Reserve, examined elections in 49 countries from 1980 to 2005. They found that during election years, firms reduced investment expenditures by an average of 4.8 percent relative to non-election years.

Mr. Suttmeier’s finding may also have an explanation, though it requires some conspiracy theorizing. “There has been much debate over whether incumbents manipulate fiscal and monetary policy instruments to influence the level of economic activity prior to an election in order to maximize the probability of re-election,” Mr. Julio said.

So it seems that the American stock market is likely to continue struggling, and companies are going to shy away from big deals. Deals that could face scrutiny for antitrust or tax reasons have particularly fallen out of favor. Both Mrs. Clinton and Mr. Trump have talked about their ambitions for corporate tax reform.

The big question is whether the economy will pick up once the next president is decided. The data says it should, but in an increasingly polarized country, the pain of electoral strife could linger on Wall Street far longer than anyone would wish, Mr. Sorkin writes.

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