Government and politics don't drive investments but they do provide the road on which they travel.
The new Republican majority in the
What everyone seems to agree on are interest rates.
"Investors should realize now that interest rates are going to stay low for a while," said
The Fed's controversial recent purchase of an additional
"Down the road there is going to be a day of reckoning in which all of this Federal Reserve easing of interest rates will have to be rewound, but it won't occur next year," believes
Don't expect mega-changes. Market analysis by
In addition, there has also been little difference in stock market performance between periods of political gridlock and one-party rule. Many other considerations besides politics, such as economic trends and corporate profit cycles, influence stock movement.
"Political gridlock can prevent some big initiatives that might be detrimental to businesses and consumers from going forward, which can be positive," said Ryan, "However, dysfunction is not constructive because it prevents the most basic things from going forward -- and some things do need to get done."
With all of that in mind, UBS makes these investment-related predictions for the changed
-- It will find common ground on a temporary extension of the Bush tax cuts, with a likely extension of one or two years. A permanent extension is unlikely to make it through a Democratic Senate and
-- While there will be considerable debate over how to reduce the federal deficit, the policy gulf between the parties is too wide for significant reform either by cutting spending significantly or by blocking healthcare reform.
-- It is unlikely to approve any additional large fiscal stimulus to boost economic activity. Stimulus remains too controversial. The Fed seems to have taken over that responsibility.
-- It will take a somewhat less activist role in regulating key industry groups.
"A lot of the change in
Dividend-yielding stocks would benefit from extended Bush tax cuts that would be a positive for dividend income. It is expected that cash-rich oil companies, pharmaceuticals, banks and consumer stocks will benefit most in the new scenario.
"The cyclical industries that are very sensitive to an improvement in the economy can do well going forward now," said Kudla. "As the economy improves and expands, their prospects improve and expand."
Yet rising deficits boosted by tax cuts don't bode well at all for bond investments. Don't be surprised to see gold investments, a harbor in uncertain investment times, continue their winning ways of the past 10 years.
"One area that jumps out to me with the new
But here's a reality check:
If the moves by the Fed and
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