Markets wait for US stimulus

With the eyes of the world focused on the outcome of the US presidential race, Justin Urquhart-Stewart offers a reality check for investors


The posters are peeling and the bunting lies bedraggled on the floor.  Post-elections are depressing affairs and potentially even more so for investors.

After the hyperbole of campaign promises, the reality of a grey morning reveals the tawdry travails of a global economy that is lower and slower.  The question, of course, is how best to prepare for it, whoever wins?

The candidate who gets the keys to the White House has a monumental set of issues to address. The United States has a worse debt to GDP ratio than the UK at 88.4 per cent. They will also inherit a worse percentage deficit as well at 9.1 per cent.

Additionally, the President probably will be saddled with a Congress split on partisan and rigid lines. Just in case that wasn’t enough, the overhang of the old Bush tax cuts, known as the fiscal cliff, is looming too.

But hold on. Before we assume that everything is doomed, we should remember that the US has some unique advantages in size and scale, and in the US dollar as the world’s reserve currency.

Trying to dynamise the US economy will have a positive effect on other economies

Americans, from either political wing, are still primarily capitalists and encouraging the private sector’s animal spirits will be part of their solution.

Stimulation will be the order of the day, albeit with a long-term plan for “financial rectitude” (just like the last one).

Obama will push a relatively mild increase in tax rates and Romney a wholesale reduction in government expenditure. Both approaches may ultimately be required. The real decision-maker is not even up for election.

Governor Bernanke, chairman of the Federal Reserve’s governors, is the one with the power for further quantitative easing in whatever style and guise. Thus it will be with his co-operation and support that the new President will be raising hopes of substantial recovery for the economy. From this then we should take hope.

Trying to dynamise the US economy with new money and inspirational confidence will have a positive effect on the other economies around the globe.

If this coincides with further euro progress and even a timely Chinese economic stimulus package, then such US policy could be exactly the tonic needed to kick the global economy out of its lethargy.

Maybe, just maybe, there might be enough enthusiasm to spur growth to encourage jobs and grow demand. That is just the message for a positive move for equity markets around the globe.

Justin Urquhart-Stewart is one of the most recognisable and trusted market commentators in the media; originally trained as a lawyer, in 1986 he help found Broker Services, which became Barclays Stockbrokers, where he was corporate development director, and in 2001 he co-founded Seven Investment Management.