Embrace the Uncertainty
By John Stoltzfus,
Chief Investment Strategist
Who Wants Yesterday’s Papers?
A New Pragmatism Emerges the Victor in Post-Brexit Elections in Europe
John Stoltzfus, chief investment strategist, discusses the results of recent European elections and their impact on markets.
What we’ll identify as “pragmatism” defeated populism in a third election on the European continent as Chancellor Angela Merkel’s party emerged victorious in an election held in Germany’s most populous state on Sunday. Her party’s victory signals support for her candidacy when she runs for re-election in September and near term augurs well for when Chancellor Merkel meets with other world leaders including President Donald Trump in the months ahead.
For now at least fears of a “Nexit” by the Netherlands or a “Frexit” by France are “yesterday’s papers.”
From our perspective as market strategists, the post-Brexit message from voters in Europe expressed if not uniformly, at least in parallel, legitimate concerns about economics, business conditions and jobs in a globalized and digitalized world along with concerns about immigration and wealth inequality.
That said, the votes thus far have broadly indicated voters’ support of the European Union, EMU, the business community and trade as structural entities from which resolutions to national and economic problems can be found.
“The challenge in the next few years will be for the recently and newly elected in Europe as well as stateside to effect change suitable to their constituencies’ desires and needs as the clock ticks relentlessly on.”
Markets Rise as Populism Wanes
Market reaction as reflected in the performance of the developed, emerging, as well as in the frontier markets year-to-date and over the course of the past 12 months in our opinion reflect a confidence among investors that while a broad array of problems tied to significant geopolitical, country specific, economic, cyclical, secular and demographic issues abound, the risks associated with these are recognized and in many cases are being addressed to some degree. That recognition and the issues that are being addressed have resulted in a vote for a change disfavoring populism.
The overall effect of this change along with an ongoing stateside economic expansion and global economic recovery has been for markets worldwide to have moved higher, often climbing a wall of worry. We believe the markets have prospects for even further upside should fundamentals continue to improve. An added boost to growth could come from fiscal stimulus stateside as well as Europe should key agenda items of newly and recently elected administrations find bipartisan and even multipartisan support.
So far the markets have responded positively to improved fundamentals, election outcomes and the beginnings of monetary policy changes around the world. Over the course of the past 12 months the S&P 500, the S&P 400, the Russell 2000 and the NASDAQ Composite have respectively risen 18.1%, 20.1%, 25.6% and 29.8%.
Internationally MSCI EAFE (the developed markets ex-US and Canada), MSCI Emerging Markets and MSCI Frontier Markets have respectively advanced 13.5%, 24.3%, and 7.9% in the past year. In the same period the MSCI ACWI Index (developed and emerging markets combined) rose 15.7%.
Pre-election rhetoric as well as victories that signal a preference for pragmatism over populism indicates to us electorate constituencies are frustrated with traditional entrenched political organizations as well as with traditional political and bureaucratic solutions.
The challenge in the next few years will be for the recently and newly elected in Europe as well as stateside to effect change suitable to their constituencies’ desires and needs as the clock ticks relentlessly on.
This report is issued and approved by Oppenheimer & Co. Inc., a member of all Principal Exchanges, and SIPC. This report is distributed by Oppenheimer & Co. Inc., for informational purposes only, to its institutional and retail investor clients. This report does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such offer or solicitation would be prohibited. The securities mentioned in this report may not be suitable for all types of investors. This report does not take into account the investment objectives, financial situation or specific needs of any particular client of Oppenheimer & Co. Inc. Recipients should consider this report as only a single factor in making an investment decision and should not rely solely on investment recommendations contained herein, if any, as a substitution for the exercise of independent judgment of the merits and risks of investments. The strategist writing this report is not a person or company with actual, implied or apparent authority to act on behalf of any issuer mentioned in the report. Before making an investment decision with respect to any security discussed in this report, the recipient should consider whether such investment is appropriate given the recipient's particular investment needs, objectives and financial circumstances. We recommend that investors independently evaluate particular investments and strategies, and encourage investors to seek the advice of a financial advisor. Oppenheimer & Co. Inc. will not treat non-client recipients as its clients solely by virtue of their receiving this report. Past performance is not a guarantee of future results, and no representation or warranty, express or implied, is made regarding future performance of any security mentioned in this report. The price of the securities mentioned in this report and the income they produce may fluctuate and/or be adversely affected by exchange rates, and investors may realize losses on investments in such securities, including the loss of investment principal.
Oppenheimer & Co. Inc. accepts no liability for any loss arising from the use of information contained in this report. All information, opinions and statistical data contained in this report were obtained or derived from public sources believed to be reliable, but Oppenheimer & Co. Inc. does not represent that any such information, opinion or statistical data is accurate or complete and they should not be relied upon as such. All estimates and opinions expressed herein constitute judgments as of the date of this report and are subject to change without notice. Nothing in this report constitutes legal, accounting or tax advice. Since the levels and bases of taxation can change, any reference in this report to the impact of taxation
should not be construed as offering tax advice on the tax consequences of investments. As with any investment having potential tax implications, clients should consult with their own independent tax adviser.
This report may provide addresses of, or contain hyperlinks to, Internet web sites. Oppenheimer & Co. Inc. has not reviewed the linked Internet web site of any third party and takes no responsibility for the contents thereof. Each such address or hyperlink is provided solely for the recipient's convenience and information, and the content of linked third party web sites is not in any way incorporated into this document. Recipients who choose to access such third-party web sites or follow such hyperlinks do so at their own risk. The S&P 500 Index is an unmanaged value-weighted index of 500 common stocks that is generally considered representative of the U.S. stock market. The S&P 500 index figures do not reflect any fees, expenses or taxes. This research is distributed in the UK and elsewhere throughout Europe, as third party research by Oppenheimer Europe Ltd, which is authorized and regulated by the Financial Conduct Authority (FCA). This research is for information purposes only and is not to be construed as a solicitation or an offer to purchase or sell investments or related financial instruments. This report is for distribution only to persons who are eligible counterparties or professional clients and is exempt from the general restrictions in section 21 of the Financial Services and Markets Act 2000 on the communication of invitations or inducements to engage in investment activity on the grounds that it is being distributed in the UK only to persons of a kind described in Article 19(5) (Investment Professionals) and 49(2) High Net Worth companies, unincorporated associations etc.) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended). It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons. In particular, this material is not for distribution to, and should not be relied upon by, retail clients, as defined under the rules of the FCA. Neither the FCA’s protection rules nor compensation scheme may be applied. This report or any portion hereof may not be reprinted, sold, or redistributed without the written consent of Oppenheimer & Co. Inc. Copyright © Oppenheimer & Co. Inc. 2015.