US prospects: what to expect from the next 4 years

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Writing exclusively for Citywire Global, the CEO and President of Natixis Global Asset Management - The Americas & Asia gives his view on the US market following the re-election of President Barack Obama.

Preserving the status quo usually soothes markets, but by re-electing President Barack Obama and a Republican majority in the House of Representatives, American voters set the stage for a difficult period for investors around the world.

Challenges confront investors on a number of fronts.

By every indication, the president and Federal Reserve Chairman Ben Bernanke – now safe from Mr. Romney's threat to fire him – will continue a monetary policy of easy money.

Yield will remain elusive both in fixed income instruments and equities. Companies already have achieved any profits that were to be squeezed out by increasing efficiency and productivity.

Because a cheap-money policy lowers the value of the dollar relative to other currencies, the stance poses particular challenges to European companies that export to the US. At the same time, the policy rewards decisions by companies such as Daimler-Benz and BMW to build manufacturing plants in low-cost, low-regulation US states.

Domestically, the re-election of President Obama poses a particular challenge to financial services companies. The political consensus was that a Romney administration would have softened the impact of the Dodd-Frank legislation, which has only been 35% implemented. Refining that law is going to be tougher than doing so would have been under a Romney administration.

But as important as these issues are, none compares to whether President Obama and House Republicans can avert the automatic combination of tax increases and spending cuts known as the “fiscal cliff” that is scheduled to take effect in January

Sometimes a person who loses one fight responds by trying to pick a bigger one.

Will Congressional Republicans frustrated by the outcome of the Presidential election dig in their heels?

At the same time, President Obama’s supporters will be tempted to act as if he won a clear mandate on election day. They may pressure him to raise taxes on the wealthiest 2% of  Americans – a symbolic gesture that would do little to address the deficit but has proven to be a stumbling block for Republican negotiators.

Compromising will not be easy, but failing to do so would be disastrous.

If both sides fail to avert sending the nation over the fiscal cliff, everybody’s taxes will go up – including those of middle class Americans.

A major recession would likely ensue.

And the one thing the US economy needs more than anything else, job growth, would at least stall and most likely reverse.

Countries with close economic ties to the United States would pay a hefty price and confidence in the US economic and political system that I’m pleased to see among my counterparts in Europe and Asia would be severely shaken.

For investors, shaken by volatility and high correlations, and challenged by low rates and shortened time horizons, the prescription remains unchanged. The key challenge and chief goal should be to manage risk in a way that reduces volatility and helps investors stay the course.

Investors of all sizes should remember that especially in times such as these, slow and steady wins the race.