The seemingly endless political chaos in the nation’s capital reportedly is sparking fears that the record-setting stock market may be poised to take a dive.
Hopes of a Republican-controlled Congress "delivering tax cuts, infrastructure spending and deregulation have steadily faded since Donald Trump entered the Oval office in January," the Financial Times reported.
The dollar has tumbled this year despite soaring after the election. "Meanwhile, a rally in the small, domestically focused US companies seen as the biggest beneficiaries of corporate taxes cuts and a stronger economy has fizzled," the FT explained.
While the benchmark S&P 500 index is still up 13.5 percent since the election, it had fallen 2.1 percent in the last two weeks. That's the most since the two weeks before the election, Reuters reported.
Concerns over lofty valuations have caused some investors to cut their exposure to U.S. stocks, instead favoring valuation multiples of companies based in Europe, The Wall Street Journal reported.
“At these valuation levels, the rubber band is stretched pretty tight and it could snap,” James Norman, president of QS Investors told the FT. Norman has been shifting clients to high dividend-paying stocks with low price and earnings volatility in the consumer staples, industrials and technology sectors, such as Kimberly-Clark, Dow Chemical and IBM, to insulate against a sudden downturn.
“There are a number of things coming up where we need leadership — the debt ceiling is a perfect example,” Norman said as Congress has vowed to raise the Treasury’s borrowing limit to avoid a potential default. “There is no shortage of things that people are concerned about with this administration in terms of getting things done or preventing things from happening,” Norman said.
To be sure, many other respected market pundits have predicted a volatile future for the stock market.
Former Republican congressman and two-time GOP presidential candidate Ron Paul warns that a hefty plunge looms for the stock market, but savvy investors can hardly blame Trump for the carnage.
The former Republican Congressman from Texas blames a buildup of political dysfunction in Washington over recent years.
"A 50 percent pullback is conceivable," Paul told recently CNBC. "I don't believe it's 10 years off. I don't even believe it's a year off. "
Other experts agree.
“There is a line between political and economic risk,” Terry Simpson, a multi-asset strategist at BlackRock, told the FT. “[Last week] has proven that it is hard to separate that risk. The message [Trump] gave on some social issues was not in agreement with what many Republicans believe. That may hinder the passage of some pro-business policies and that may stall the rally.”
(Newsmax wires services contributed to this report).
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