SIx Ways Politics Could Capsize The Bull Market

Politics could be the catalyst that touches off a bear market.

Over the past two years, investor optimism surged, tracking a global bull market in equities with little sign of flagging positivity, however, Greg Valliere, chief political strategist at Horizon Investments, outlined several scenarios that could wipe the smiles from investors’ faces.

“It seems like this rally is going to go straight to the sky,” said Valliere on Tuesday at the 2017 Schwab IMPACT conference in Chicago. “Maybe we’re getting late in the cycle, and we’re at a point where we’re all adults, and we need to think about what could possibly go wrong.”

Addressing the 2,000 advisors in attendance, Valliere noted that his fellow presenters at the conference were acknowledging fundamentally sound markets tracking growing economies, but that political risk, whether it manifests as changing domestic policies, or deteriorating international relations, or something else, should be included in investing assumptions.

According to Valliere, six scenarios could derail the bull markets.

No. 1 – Failure Of Tax Reform

While most observers believe that some kind of tax reform is passed within the next six months, Valliere is not completely sure that the tax reform plans proposed by Congress and the White House will become law.

“It will pass the House in the next 48 hours, no question, but then you go to the Senate. As someone famously said, dealing with the Senate is like herding cats, it’s just very hard to get things done,” he said, noting that three negative Republican votes were all it took to scuttle repeated attempts to repeal the Affordable Care Act.

Senate mavericks like Rand Paul of Kentucky, Susan Collins of Maine and John McCain and Jeff Flake of Arizona could alter, delay or kill attempts to reform the tax code, and the current bill is likely to raise the ire of Republican deficit hawks: The current configuration of tax reform would be unacceptable to some congressional Republicans because it would add an estimated $1.5 trillion to the national debt over the next decade, said Valliere.

In any case, legislative procedure would require members of the House and Senate to conference to create a uniform version of the bill, a process that Valliere said could extend into the new year.