Blackfinch Briefing – Natixis Investment Managers’ Summit 6-7 November 2018

Blackfinch Wealth



With political uncertainty placing us in unprecedented times, clients are looking to advisers for support. This month, portfolio manager Gareth Deacon, who co-runs the Blackfinch Wealth Managed Portfolio Service, travelled to the Natixis Investment Managers’ Summit held in Paris. He heard from a raft of leaders and experts, bringing insights back to Blackfinch for use by advisers.

 

The US mid-term elections

Panel event – 7th November

A highlight of my time at Natixis was a panel event on the impact of the US mid-term elections. It featured a great range of speakers including David Lafferty, Senior Vice President and Chief Market Strategist at Natixis; historian and political scientist Nicole Bacharan; financial and business journalist Francesco Guerrera; and Andrew H Card. Card was White House Chief of Staff under George W. Bush from 2001 to 2006, as well as head of Bush’s White House Iraq Group.

In terms of relevance and scheduling, the session couldn’t have been better timed. Overnight we had heard the election results, with the Democrats taking control of the House of Representatives and the Republicans retaining control of the Senate. Interestingly, the pollsters had called the result almost perfectly.

 

Short-term policy changes unlikely

The panel intimated that while we now see a split congress, the votes within both houses were close enough that it must be considered that as of now, neither party has been given the mandate to govern the US. As a result, it’s unlikely that congress will be unable to enact much change for the next two years.

 

Deeper divergence across US

One point made is that the division within the US, and the differentials between states are becoming more pronounced. It was suggested that the ‘mainstream republican’ has all but disappeared, and that the Republican Party has become ‘Trump’s Party’. The consensus was that, beyond the next two years, his legacy will hover over the party for a long time to come.

 

Destabilising impact of social media

Continuing a key theme of the conference, speakers highlighted that social media is having a great impact on the way in which the public are viewing politics. Local newspapers in the US are drying up, with large ‘news deserts’ appearing in some states and circulation down some 40% in the last two decades.

This lack of ‘traditional’ media has led to Facebook, Twitter and television becoming the three main sources of news in the US. By consuming media in this more selective way, it is much more likely that the American public will only see news that reconfirms their personal biases, which in turn exacerbates the division between states.

 

Stabilising impact of election outcome

The discussion moved to the international reaction to the result. The general consensus was that it will lead to a reduction in the level of nervousness seen around the globe since 2016. This includes in the UK when the American election result came in the same year as the EU referendum. Similarly, the small degree of clarity provided by the mid-term election result has also helped to bring a little stability to markets.

 

Outlook for Trump and Republican Party

Speakers also focused on the President himself and how he might now choose to lead going forward. The point was made that to date he has limited the ability of each House to govern, instead ruling by executive order, as opposed to the traditional method.

The group suggested that he may need to make a decision, as to whether to continue with this strategy or not, which could affect the length of term as president. But however he chooses to react, it is currently highly unlikely that he will see a strong challenger from within his own party ahead of the 2020 election, with no standout candidates emerging.

 

Outlook for Democratic Party

The panel discussed the lack of strong presidential candidates that also seems to be the case in the Democratic Party. They noted that there is a youth movement within the Democrats, with a seeming rejection of the past taking place, yet no obvious challenger for 2020 at present.

They also highlighted the number of successful female candidates in this election. The consensus was that there is a high probability we will see a female presidential hopeful coming forward to challenge Trump. But who that may be is still unclear.

 

Strong voter turnout

Speakers looked at a positive that can be taken from these mid-terms: the level of turnout amongst voters. This reflects the greater levels of politicisation and engagement resulting from Trump’s presidency. While exact figures have not been confirmed at present, initial numbers suggest that 48% of all eligible voters took to the polls, up from only 37% in 2014.

 

Market outlook

At Blackfinch, we know that markets globally look set to remain volatile overall. While the US mid-term elections have now taken place, political upheavals are affecting markets on an ongoing basis. We will continue to monitor the markets, focused on opportunities for investors, along with outcomes of these elections over the long term.