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UBS Wealth Management: ‘Fundamentals will outweigh political uncertainty and US stocks can rebound’

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Global Chief Investment Officer Mark Haefele says: “The market reaction to the outcome, in our view, will come in two stages.

“A reflexive flight to safety has already occurred, with Treasury bond prices rising. The US dollar has declined around 1% on a trade-weighted basis, while safe-haven currencies like the Japanese yen (+2.9%) rallied against USD. And gold also climbed 3.6%. Risk-sensitive assets lost ground – S&P 500 futures fell 4.2%, and the Mexican peso shed 9% against the dollar.

“While these first-round effects are certainly disconcerting, we expect the US equity market to recover over the medium term. CIO believes fundamentals will outweigh political uncertainty and US stocks can rebound on the back of accelerating earnings per share (EPS) growth. We forecast EPS to rise from 1% this year to 8% next. Selected industries could benefit from the possibility of more lenient regulation – particularly the financial services and energy sectors. Others businesses, especially those focused on national defense infrastructure, could enjoy advantages from more expansionary fiscal policy.

“Still, policy uncertainty may raise overall equity-market volatility, and lead to market dislocations that short-term investors might look to exploit.”