Where now for US equities?

Growing political risk

The strength and persistence of the reflationary rally in US equities has been unusual. This rally is the longest in US equities without a 5% correction for over 12 years.

Extended positioning and sentiment measures suggest a pull-back is overdue and mean the market is likely to be very sensitive to even modestly disappointing news.  Trump's election was a key factor in sustaining the momentum in the second half of 2016, but short-term political risks are clearly growing.  Contradictory messaging from the governing team, a continued lack of policy detail in key areas such as tax and infrastructure stimulus, and threats to trade are significant issues at a time when markets are at risk of overreacting to negative news flow. Despite this backdrop, we b...