Photo: Bloomberg TV
Despite weak macro-economic data in the U.S. and risks stemming from political uncertainty in Europe, the U.S. stock markets have held up well.In an interview with Bloomberg TV Barry Knapp, head of equity strategy at Barclays Capital, said this is because of optimism surrounding the upcoming election.
Looking back to 1980 when the U.S. economy reported -8 per cent second quarter GDP growth, after president Jimmy Carter slapped on credit controls, and CPI was at 15 per cent, Knapp said the market had a “ferocious rally from the end of March through Thanksgiving” and Reagan beat Carter in the elections.
“Elections breed optimism, and the idea that we might get a new CEO of the country really could trigger a fair bit of resiliency in the markets and perhaps even a rally as we get closer to the elections.
We’re thinking that we are cushioned on the downside at least a little bit by the dynamic that if the growth outlook gets worse President Obama’s ratings will fall and we’re going to get a new government to address these problems. And markets may very well rally as a result despite some pretty ugly data.”
He said in the short-term investors will worry that the Federal Reserve won’t support the markets but in the long-term this will be a positive. For now, Knapp said everything depends on the fiscal cliff and the elections:
“Everything will hinge on the idea that we can settle the fiscal cliff question, we can get our debt sustainability in order through entitlement reform. And if the elections result is not a status quo with the current situation we may very well get some optimism around that. But it’s a later in the year story for now we think that we should be cautious.”
Watch the entire interview at Bloomberg TV >