So what does this mean for investors? Political gridlock and uncertainty tend to unnerve investors and lead to higher levels of market volatility. This phenomenon didn’t happen in 2013, when volatility remained muted, partly thanks to massive central bank liquidity.
However, this year, the Federal Reserve is tapering at the same time that political uncertainty is likely to remain high. While the December budget accord removed one market risk, there are other policy-related sources of uncertainty that will likely crop up soon, dampening business and consumer spending, and increasing market volatility in the process. You can read more of these unresolved political issues in my full Market Perspectives paper. The bottom line for investors: Prepare for a rocky road ahead.
Russ Koesterich, CFA, is the Chief Investment Strategist for BlackRock and iShares Chief Global Investment Strategist. He is a regular contributor to The Blog and you can find more of his posts here.
Source: February 2014 Market Perspectives, The Price of Politics