U.S. election, rate outlook to curb Wall Street gains this year: Reuters poll

Tue Oct 4, 2016 9:23am EDT
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By Caroline Valetkevitch

NEW YORK (Reuters) - Uncertainty surrounding the U.S. presidential election, expectations for higher interest rates and weak corporate earnings will keep U.S. stocks from advancing much in the fourth quarter, according to strategists in a Reuters poll.

The benchmark S&P 500 index .SPX will end the year at 2,173, according to the median forecast of 40 strategists polled by Reuters over the past week. That would be up slightly from Monday's finish of 2,161.2 and a gain of about 6 percent for 2016.

Between July and August, the index hit a series of all-time highs, with the record close now standing at 2,190.15. But strategists expect the S&P to surpass that in 2017, notching up a yearly gain of about 6 percent to 2,310.

Strategists were more optimistic than they were in July, shortly after Britain's vote to leave the European Union.

But the race for the White House between Democrat Hillary Clinton and Republican Donald Trump will take on greater importance as the Nov. 8 vote approaches and should cause more volatility, especially in sectors like health insurance, pharmaceuticals and energy, strategists said.

In the poll, respondents overwhelmingly viewed a Clinton victory as more positive than a Trump win for U.S. stocks, at least until year-end. Indeed, a perceived win by Clinton in the first presidential debate of the season on Sept. 26 helped support U.S. equities the following day.

"One of the principal factors holding stocks back is policy uncertainty," said Brad McMillan, chief investment officer for Commonwealth Financial in Waltham, Massachusetts. "Should Mrs. Clinton win, for better or worse, markets think they know what she will do."

More strategists than not see a high likelihood of a 10 percent or more correction in the U.S. market over the next 12 months, and they view continued weak earnings and more Federal Reserve rate hikes than expected as among the biggest risks to global stocks over the coming year.   Continued...

A man sits on a marble wall as pedestrians walk on the streets in front of the New York Stock Exchange in New York, U.S., October 3, 2016.  REUTERS/Lucas Jackson