Breaking News
Black Friday SALE: Up to 54% off InvestingPro! Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Fear of missing out keeps investors in stocks despite risks

Stock MarketsDec 01, 2017 07:05PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. Traders react at the closing bell on the floor of the NYSE in New York

By David Randall

NEW YORK, (Reuters) - Wall Street's fear of missing out on a relentless rally appears to be trumping rising political risk in a high-stakes December in Washington.

The ticking clock on the Republican Party's efforts to cut corporate taxes, alongside the risk that the U.S. government may shut down if a budget deal isn't reached by December 8, is increasing the levels of political risk for investors - but they have yet to really react.

"Right now the market is assuming that everything will work out, but you've got a tremendous number of moving parts," said Phil Orlando, chief equity market strategist at Federated Investors (N:FII) in New York.

Alongside the back-and-forth on taxes, Wall Street will be watching a Dec. 8 expiration date for funding needed to keep the U.S. government open alongside the deadline when the U.S. Treasury hits its limit on borrowing; as well as a Dec. 12 Special U.S. Senate election in Alabama.

On Tuesday, President Donald Trump warned on Twitter that "I don't see a deal" to keep the government open and work past Dec. 8, although the White House said Wednesday it did not see such an eventuality.

Typically, the threat of a government shutdown alone would prompt fund managers to move more of their assets into cash. The benchmark S&P 500 lost 2.6 percent in the eight trading days before the last government shutdown in 2013, and has declined an average of 0.6 percent during government shutdowns overall, according to LPL Financial. Debt limit concerns are likely to be put off until 2018 as the U.S. Treasury is expected to take steps to postpone any need for action by Congress.

Yet with the benchmark S&P 500 up nearly 18 percent for the year to date, some portfolio managers see a greater risk in stepping to the sidelines. Throughout the year, the stock market has rallied in the face of standoffs ranging from increasing tensions in North Korea to former FBI director's James Comey's testimony to Congress that President Trump fired him to undermine the agency's Russia investigation.

On Friday, stocks sold off on a report that former national security adviser Michael Flynn was prepared to tell investigators that before taking office Trump had directed him to make contact with Russians. However, shares quickly pared those losses.

Despite his skepticism, Orlando has yet to move more of his assets to cash, in large part because corporate earnings keep rising and should continue to do so even if a tax package is not signed, he said.

If the tax bill fails, Orlando said he expected the S&P 500 to fall by as much as 10 percent. He would be a buyer in that case, he said, because he expected the S&P 500 to reach 3000 within the next 18 months.

CROWDED CALENDAR

Brian Peery, a portfolio manager at Novato, California-based Hennessy Funds (O:HNNA), said a government shutdown or the tax bill failing would prompt a swift sell-off, but that rising consumer confidence would ultimately continue to push the market higher over the next year.

"If I'm looking at a 10 percent correction, I'm a buyer," he said.

The inaction is not limited to the stock market.

Christopher Ryon, a municipal bond fund manager at Santa Fe, New Mexico-based Thornburg Investment Management, said that the Republican tax bill could reduce the size of the municipal bond market by 25 to 30 percent by limiting the ability of stadiums, airports and privately-financed toll roads to qualify for tax-exempt status.

At the same time, there could be an increased demand for municipal bonds if residents of high-tax states are no longer able to deduct their full state and local property taxes, leaving tax-free municipal bonds as one of the few ways wealthy investors can reduce their taxable incomes.

As a result, Ryon is largely sitting on his hands, ignoring both lower-rated bonds that have rallied as investors have reached for yield and triple A rated bonds that look "on the rich side," he said.

"There are a whole lot of unintended consequences attached to this (tax) legislation," Ryon said. "This is going to be an interesting couple of weeks where we will really see how the sausage gets made."

Fear of missing out keeps investors in stocks despite risks
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email