Focus on US – US corporates fend off Sandy, election headwinds

Top US corporates are demonstrating resilience and even growth, despite the headwinds presented by the uncertainty surrounding the US presidential election, the damage from hurricane Sandy over the past week and the drag from the ongoing Eurozone crisis.

Dan Morris, global strategist at JP Morgan Asset Management, said some US industries will certainly be impacted by the outcome of today’s US elections.

“Following the first presidential debate, when the prospects for a Romney victory improved dramatically, the relative performance of a few industries has been notable,” he said. “Some, such as coal and consumable fuels, have clearly benefitted from the change in outlook, while for other obvious beneficiaries, like health care insurance, the rebound has been more muted.”

He said that illustrates a broader point about the likely impact of the election on equity markets.

“Beyond a few select industries, the market as a whole is likely to progress the same regardless of the outcome. The US economy is $15.8 trillion. Government spending accounts for less than 20% of that, and the discretionary part is even smaller. Barring a substantial change in corporate and personal tax rates, aggregate business investment and household consumption will continue as before.”

He added: “While there may still be significant legislation following the election, the fact that different parties are likely to control different parts of the government means the range of likely outcomes is limited, whoever the victor.”

Kevin Gardiner, head of investment Strategy EMEA at Barclays Wealth and Investment Management, agrees. “The corporate outlook has not been affected significantly either by Hurricane Sandy, despite its high cost in human terms, or by the latest batch of those quarterly earnings announcements.”

“Expectations for the latter were managed down, of course – but stocks are not priced rigidly on analysts’ forecasts, and to us have long seemed to be implicitly expecting a much lower level of earnings again. Meanwhile, the latest macro data – including today’s jobs report – suggest the US economy is approaching that fiscal cliff with a little more momentum than feared.”


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