NEW YORK: Investors expect the division between Republicans and Democrats who control the United States Congress will open up opportunities to choose new winners and losers because some government policies will be harder to predict.
The correlations between stocks and sectors were high during the preparation of Tuesday's elections to the congress, which means that investors were dumping or buying all types of stocks not related at the same time. Some funds have been damaged in what is a difficult market to be a stock picker.
Now, with voters who give Democrats the control of the House of Representatives and Republicans who retain their majority in the Senate, fund managers can take borders contrary to different political bets.
These may include whether the financiers will benefit from deregulation, even with the strictest supervision of the home, if healthcare will face more policy proposals aimed at restricting costs and whether military spending is trapped between the two parties.
"If we find ourselves in a generally volatile environment, but it's not too negative, in other words, a choppy market as opposed to the bears market, I think it's an environment where correlations may fall," said Evan Brown, head of the allocation strategy for macro assets in the asset management company of UBS AG.
"There is a potential for the performance and the insufficient performance of the sector as a result of the elections."
President Donald Trump told reporters on Wednesday that he was willing to work with the Democrats on some political priorities.
The problems that bipartisan support can bring together include a package to improve the infrastructure, protections against rising prescription drug prices, and an impetus to rebalancing trade with China.
Stocks recovered on Wednesday, but Cboe S & P 500's Implicated Correlation Index dropped more than 9 percent and another was flat.
The correlations between the shares and the sectors of the bottom of September were exceeded in October. Even more harmful: bonuses and shares have been changed together, both for the month and for the 12th time since the March 2009 March of the US market.
MACRO VS MICRO
October control was driven by macroeconomic concerns linked to the US Federal Reserve, tariffs, and inflation, and badly managed asset managers. US mutual fund managers have posted their worst results against their benchmark since September 2011, according to Bank of America Corp. data.
More conflict in the political decisions could mean that the factors act more than the macroeconomic developments.
For example, investors are bidding sand and gravel suppliers Martin Marietta Materials Inc and Vulcan Materials Co in the hope that bipartisan support for infrastructure spending can move forward. But the founder of ValueWorks LLC, Charles Lemonides, said it is cutting back its share in shares as they begin to reflect too much optimism.
"We think there is a lot of opportunity for people who are willing to do the hard work of investing, which is finding individual investors that make sense," said Lemonides.
Macro forces may be less relevant than what is assumed in the short term. The meeting expected at the end of the month between Trump and Chinese President Xi Jinping could give encouraging words but no firm commitments to solve commercial issues.
The Federal Reserve of the United States could raise the rates expected in December and, at the same time, hit a tone that keeps markets quiet. Both concerns: commercial warfare and the opening of monetary policy may end up being until 2019.
While markets focus on more partial issues rather than trade and monetary policy, the implications for the shares could be positive for next year, according to investors.
The low correlations between stocks usually also mean less volatility for the global market. It was such a benign scenario that it helped to withstand the uncertainty of a new Trump administration in 2017.
Of course, trade-holders, monetary policy or an unexpected macro problem may alter the pink panorama, maintaining high correlations. Global profits and economic growth could reach the maximum.
Policy makers, including those in the same party, could be so disagreeable that they do not make changes in politics. Republicans who controlled the White House and Congress since January 2017 surprised investors by not replacing the Law of Economic Assistance despite being a campaign promise.
This is again listening hard now in a variety of problems, of revoking a medical device tax to pass a budget or loosen the regulations of banks. Each event can be imported at a sectoral level, but it is not likely to determine the course of the market in general. US rates begin to bite businesses and industries, adding new relevance to market and sector pieces.
And the aggressive monetary policy that responds to the global financial crisis 2007-2009 disappears, causing differences between countries and allowing more defensive actions in the United States, where once eclipsed by technological names.
Liz Ann Sonders, Chief of Strategic Investors at Charles Schwab & Co Inc, said a market driven by a wider range of stocks could help more people invest.
"Diversification has been a tough sale".
(Report by Trevor Hunnicutt, edition of Megan Davies and Grant McCool)