With market participants in a near state of perpetual pessimism it wouldn’t be shocking if some of these fears result in a wall of worry built on “better than expected” news. But Morgan Stanley’s analysts think the unexpected surprise could come from one of the less obvious events in 2012 – the US Presidential election:
Where could we be wrong? We worry all the time about our market call, but at the end of the day, we are not really worried that Europe is going to be “solved” or that its economy will strongly grow. We also don’t think strong corporate profitability relative to expectations will save the day. To us, the biggest bull case for US equities is based on the huge cash balances and the potential belief that they will be more actively and productively deployed. The biggest possibility here would be Romney winning the Presidential election. Our guess is that the market multiple would expand if in fact more investors start believing Romney will win.
It’s an interesting observation. Romney’s a closet Keynesian and much of his “balance budget” rhetoric could turn out to be nothing more than election talk. Plus, a continued Obama Presidency is likely to run into further stonewalling in Congress. Romney, the stock market friendly candidate? Hard to imagine given the fact that Obama’s Presidency has been unusually friendly to the equity markets in his first term.