CIO of Private Banking at UBS: The market will remain volatile in the next few months, and the policies of both parties should be paid more attention to.
Richard Madigan, the chief investment officer of JPMorgan Chase & Co.’s private bank, said markets would remain volatile ahead of the US presidential election in November, but investors should focus on the policies of the two candidates rather than reacting to their respective “populist” rhetoric.
Asked whether he saw signs of a “Trump trade,” Mr Madigan said there were trades on both sides of the presidential election, “their policies are very different but they both seem to be leading to more issuance of US debt and more fiscal deficits, which could lead to inflation and a worsening of the bond market.”
However, investors have shifted back to large growth stocks after Mr Trump announced on Sunday that he was stepping down from the race and supporting the vice-president, Hillary Clinton, and the recent rally in small stocks has also eased. Bond investors have also unwound some of the trades that had been put on because of the expectation of a Trump victory.
Mr Madigan said the S&P 500 index was not yet ready to deliver the excess returns it has delivered so far this year. He said that JPMorgan’s private bank had turned “neutral” on stocks when the index hit 5600 in early October.
Mr Madigan said the control of Congress was more important than the outcome of the US presidential election. The Senate is currently controlled by a slim Democratic majority and the House of Representatives by a slim Republican majority. “When the control of Congress is settled, they will focus more on policy narratives, which helps to take action,” he said.
Mr Madigan added that the profits of large technology companies and the so-called “seven sisters” would continue to outperform the market, while smaller companies would be weighed down by expensive debt, weak earnings and margins. However, he expected more volatility in the coming months because of high valuations and political news. He also said he had been “overweight” in high-yield bonds in the US, Europe and emerging markets.