UBS Wealth Management Vinay Pande said savvy investors should always focus on these three factors when making crucial investment decisions: valuation, policy and risk management.
Market experts are warning that the recent stock rally since President Donald Trump’s election victory could quickly turn into a “Trump Tantrum” if the new U.S. administration's healthcare bill stalls in Congress, prompting worries on Wall Street and around the world about tax cuts and other measures aimed at promoting economic growth.
Investors are dialing back hopes that Trump will swiftly enact his agenda, with a Thursday vote on a healthcare bill a litmus test which could give stock investors another reason to sell.
But Pande said that apparent investor fear runs deeper and far wider than one is inclined to think.
“I don't think the markets are as concerned about the healthcare proposal directly as they are about what it means for the implementation for taxes,” he told CNBC.
Any hint of further trouble for Trump's agenda, especially his proposed tax cut, could precipitate a stock market correction, experts have warned.
“I don't think any imagined that healthcare would be easy. Can he not deliver to his constituents what they need, which is a tax cut? President Obama delivered healthcare to 20 million people. Those were his constituents. I find it hard to imagine that the tax reform or tax cuts wouldn't be forthcoming,” Pande said.
As far as investors, Pande contends that many investors have been hiding in bonds and staying away from equities. He thinks too many investors are holding their cash on the sidelines or “overinvested in fixed income.”
Strategists have been cautioning for weeks that markets are pricing in a scenario where nothing goes wrong with Trump's agenda. Investors are paying $18.10 for every dollar in earnings expected on the S&P 500 over the next 12 months, near the most expensive U.S. stocks have been since 2004.
"This is really about the fact that the market is pricing in too much certainty on a number of accounts," Julian Emanuel, executive director of U.S. equity and derivatives strategy at UBS Securities, told Reuters. "Even if you got the positive vote, there's still the residual knowledge that the agenda will be difficult to get through the Senate."
(Newsmax wires services contributed to this report).
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