With Obama in office for a second term, the markets are likely to do well, the fiscal cliff will probably be resolved and Dodd-Frank and Obama's healthcare legislation are here to stay, said current and former MFS investment experts during the firm’s post-election webcast for financial advisors.
The webcast, which aired Wednesday, offered advisors the chance to hear MFS’s take on Obama’s win and ask questions of their own.
James Swanson, chief investment strategist and fixed-income portfolio manager at MFS said the election, and who wins the Presidency, doesn’t actually have much bearing on the market. And though markets have historically done better under Democratic Presidents, more important are things like the business cycle, which is actually looking pretty good, and what’s happening in the U.S. economy, he said
“People get wrapped up in these elections, and they don’t realize that the power of the Presidency is really very limited by the constitution and by the congress,” he said in a phone interview. “What really matters for investors is the business cycle, how long it’s going to last and how much money companies can make to generate income for the credit market and the stock market.”
Though Congressmen will likely play up the drama and brinkmanship of the fiscal cliff debate, it’s not in either groups’ interest to let the issue go unresolved, he said. While advisors should watch the developments in the fiscal cliff resolution, that doesn’t mean they should stay on the sidelines, Swanson said.
Former MFS chairman Robert Pozen, who is also a Harvard Business school lecturer and senior fellow at the Brookings Institution, seconded the notion that not much would change with Obama in office.
Pozen highlighted several key legislative issues in the coming years. Though certain provisions of Dodd—Frank and the Affordable Care Act legislation may be trimmed down slightly, they will not be repealed, Pozen said. Within the Dodd—Frank Act, the Volcker Rule is likely to stay, though perhaps with some interpretive issues he said.
Additionally, growth in RIAs is likely to continue as the SEC works on the mandate to “harmonize” fiduciary rules. However, “The SEC will likely take years to figure that out,” Pozen said.
Good news for advisors and their clients, and a point both Swanson and Pozen made several times, is that historically the markets have done almost two times better under a Democratic president than under a Republican, even when Bill Clinton’s term is excluded (nearly three times better when it's included). In fact, this particular environment, with a Democratic President and a Republican led Congress tends to be the best one for the market, Swanson said.
Swanson also pointed out several bright spots advisors could share with clients and said, “We have enough demand to pull the economy through this fiscal cliff.” However, one thing advisors should stop doing, he said, is buying bonds. Instead they should try to have a more balanced perspective on asset allocation.
“Everyone’s been paralyzed by the election and the rhetoric,” Swanson said. “The real issue is what’s going on in the U.S.; we’re ranked two or three in productivity, our exports are rising and our housing market is coming back. So it’s not a bad recipe.”