Focusing on the Fed’s response to any political spillover may provide firmer guidance, and Treasury yields could face downward pressure should the central bank express stronger concerns about the impact of trade disputes on the economy. Vogel expects the Fed will be watching business and consumer confidence as an early indicator: While tariffs are a potential threat to growth further down the track, sentiment could deteriorate quickly.
Greg Valliere, chief global strategist at Horizon Investments in Charlotte, North Carolina, sees a more generalized risk to investor confidence.
“If global investors begin to think that the U.S. is beginning to look less stable politically, that could have an impact on markets,” he said.
For this reason, he also considers monetary policy a crucial guide for investors. “It’s important to know that while Trump is very erratic, there are other people like Jerome Powell that the markets have great faith in,” Valliere said, referring to the current Federal Reserve chief.
Provided investors take their cues primarily from the U.S. central bank, markets may remain in a holding pattern at least until the Sept. 26 Fed meeting. Policy makers will then update their projections for interest rates and the economy, which last envisaged two more hikes this year and three in 2019.
As the economy remains strong, the Fed may stay the course. That could be enough to keep the political noise in the background and to allow U.S. rates and the dollar to resume their upward trek. Should political concerns become more pressing as the midterms draw closer, investors may need to reassess their strategies.
This article provided by Bloomberg News.