Investors would be wise to tune out the “election noise” and any short-term market gyrations and focus on their long-term investment strategy, a new report by Wells Fargo Advisors says.
The report, “What’s at Stake for the Economy and Your Wallet: The Elections,” takes a look at what’s ahead for the nation in the areas of debt, taxes and investing.
Stuart Freeman, chief equity strategist for Wells Fargo Advisors, notes in the report that consumer and investor angst has been high as Americans have faced uncertainty surrounding taxes, the European recession, the fiscal cliff, slow growth in the U.S. and China, and the election. But while the markets are likely to remain volatile for the rest of the year because of these concerns, he said, these factors do not change Wells Fargo’s position that stocks should show “better return potential than fixed income over time.”
Freeman said Wells Fargo expects the S&P 500 index to hit 1,400 to 1,450 by year-end. “Should new Fed and European Union quantitative easing programs materialize, we believe the S&P 500 could move toward the top of the range prior to year-end,” he said.
As for the nation’s debt ceiling—U.S. debt recently reached $16 trillion—Brian Rehling, chief fixed-income strategist for Wells Fargo Advisors, notes in the report that Congress will deal with the debt ceiling debate after the November elections. “Should a single party control both houses of Congress and the presidency,” he said, “the debate will likely be handled without the threat of a government shutdown and default.” However, “a split in power will be more problematic.”
The study notes that while the federal government’s fiscal woes generally take center stage, it’s also important to look at individual states’ financial problems, too. More than half of the states, the study notes, face projected budget shortfalls, which could hurt employment and the overall economy.
In the area of taxes, the Bush tax cuts expire at year-end. Gary Thayer, chief macro strategist for Wells Fargo Advisors, says Congress will take action on this issue before year-end, but not before the election. “Both parties have signaled the willingness to delay the expiration,” although Democrats want the cuts to expire for the wealthy and Republicans don’t, he said. While any extension to the tax cuts won’t likely be enacted until a new Congress is in session in January, he said, after the election we are likely to see “more substantive measures to address the fiscal cliff.”
Thayer warns that Congress only has “a small window to postpone the fiscal cliff until the newly elected leaders can address these issues.” However, he said, “elected officials cannot just extend things indefinitely. Congress will need to show a timeline for seriously addressing the nation’s fiscal problems.”