Article written by Pathfinder – 2020

Before moving onto our usual market commentary, we thought we would make a few comments on the NZ election result over the weekend in terms of market implications.

The centre-left Labour government will be unencumbered by coalition partners to implement its policy platform. While policy has been light in detail, priorities will be NZ$40bn infrastructure investment, funding for apprenticeships, trades and enterprise training, and a commitment to a 100% renewable energy platform – something we touched on in our prior monthly newsletter. We are supporters of Labour’s 100% clean energy generation target by 2030. Overall, we see little stock market impact from this result which was largely expected.

With the local election behind us, all eyes look to be focused on the upcoming US Presidential election. Markets don’t like uncertainty, and there were concerns that a closely contested election would mean that there could be months of uncertainty on the table.

Without speculating on the election, the market is now pricing in a large pre-election rally as a blue wave becomes increasingly likely and priced into markets. The market remains unperturbed by the lack of government fiscal support (although the financial headlines are conflicted around the potential for an imminent $1.8 trillion stimulus package), seemingly taking the view that a clean sweep by the Democrats will see a large fiscal stimulus package early next year anyway, which will more than offset any concern that higher taxes might play on earnings.

At the same time, US corporate earnings season is being watched closely, and it has been a mixed bag from the bank profit results so far.

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