US presidential electionItaly isn’t the only consideration in the fourth quarter. According to the polls, Donald Trump winning is just as unlikely as a Brexit win was two months ahead of the referendum. Didn’t Brexit teach us not to count our chickens? Yet investors seem totally nonplussed. Perhaps Trump has scared people enough that he’s thrown his chances away. Perhaps it is the fact that we don’t know what kind of President Trump would make. We can definitely question whether he will really be at daggers drawn with China, whether the Mexican Wall will really be built, and whether Nato really is so unimportant in his eyes. We just don’t know. Read more: The latest Clinton email twist lays bare America's miserable choice On the plus side, either presidential choice will likely bring further fiscal spending and that’s a reason for markets to rejoice.
Monetary and fiscal policy
It would be foolish to assume that the buoyancy in markets is purely fuelled by complacency, particularly when the rally feels so unloved. In fact, the real data so far in the UK seems to suggest that the fears of a collapse in the economy predicted by the surveys were greatly exaggerated – for now at least. The same is true in Europe. And where central banks are concerned, the belief is that lower for longer rates could very easily be lower for just about forever. Political risk was also washed away by the continued waves of monetary stimulus. There’s more and more talk of fiscal spending support around the world not only from US electoral candidates but also from the UK government, Japan and in Europe. The only central bank that could reverse the mood this year is the Fed. Janet Yellen acknowledged the improvement in the US economy at Jackson Hole last week and that message was strengthened by vice chair Stanley Fischer. Yet most analysts and investors believe that an interest rate hike will come in December or later. Another reason to hold your nose and buy.