Markets rise but US 2020 elections bring risk

Markets rose on Monday.

The S&P 500 rose 0.8 percent to a new record, the STOXX Europe 600 rose 1.0 percent and the Nikkei 225 rose 0.8 percent.

Despite the US stock market already sitting at record highs, JP Morgan said 2020 could be another strong year for stocks.

JP Morgan analyst Nikolaos Panigirtzoglou said that after a strong performance by stock markets this year, retail investors are likely to respond by turning into big buyers of equity funds in 2020.

“This suggests 2020 could be another strong year for equities driven by retail rather than institutional investors,” said Panigirtzoglou.

However, the US elections could have a significant impact on the stock market.

“In the United States, equity returns during periods of divided federal government have typically exceeded returns achieved when one political party controls the White House, Senate, and House of Representatives,” wrote analysts at Goldman Sachs in a Monday note.

Tim Moe, Goldman’s chief Asia-Pacific equity analyst, said that a unified Democratic government in particular could result in a rollback of the 2017 corporate tax cut and spark “possibly even up to a 20% correction on the S&P”.

Julian Emanuel, chief equity and derivatives strategist at BTIG, noted that fear of a unified government outcome in the 2020 elections “is substantial at the same time that confidence, so very important to markets and economies, remains fragile albeit stabilizing”.