The United Kingdom faces a defining moment as it prepares for the grand finale of Brexit, a process that has lasted three and a half years.  During this time, it also needs to prepare for how it will negotiate trade deals with its global counterparts.  The U.S. is a key trading partner for the U.K. and will need to work on a future trading agreement. Negotiating a deal will be intensive for both parties and according to Reuters, Presidential Candidate Joe Biden has made it clear about one of the requirements for any trade deal with the U.K.  Biden has

Through one of the most volatile years on record, the S&P 500 has managed to record a total-return of 9.4% year-to-date.  The S&P 500 also reached a new all-time high on September 2nd thanks to the strong performance of FAAMG stocks (Facebook, Amazon, Apple, Microsoft, and Alphabet).  With fears of a second COVID-19 wave and a contentious U.S. election ahead, uncertainty remains at record levels.  As a result, we look at valuation levels to gauge future investment decisions considering this environment. The graph above displays the inflation-adjusted (real) P/E ratio of the S&P 500 since 1900.  The Shiller Cyclically Adjusted

The Misery Index is defined as a combination of the unemployment rate plus inflation rate for a country.  Rising prices combined with a large unemployment rate is undesirable but one that the U.S. partially faces today given the impact of COVID-19.  The U.S. Misery Index peaked at 15.0% in April 2020, a level not seen since 1982. Exhibit 1 provides a global picture of the Misery Index.  The U.S. saw the largest spike in the index out of the countries selected below during COVID-19.  Canada saw the second largest spike during 2020.  Japan has been able to maintain its low

Presidential candidate Joe Biden has been adamant on raising corporate and personal tax rates if elected in November.  However, there has been a global trend to reduce corporate tax rates and become more competitive.  According to the Tax Database from OECD, 18 of 33 countries have lowered statutory corporate tax rates in the last 10 years.  Most notably, the U.S. significantly lowered corporate tax rates in 2018 from 35% to 21%. Only six countries including Portugal, Turkey, South Korea, Chile, Slovak Republic, and Iceland have raised tax rates in the last 10 years.  Former Vice-President Joe Biden would plan to

Defense spending is an integral part of the U.S. budget.  Since 1950, consumption and investment on national defense has increased from $20 billion to of $877 billion in 20Q2.  This represents a 5.5% compounded annualized growth rate over the last 70 years. While gross spending has increased over the long-term, it appears that the rate of increase is largest during a Republican Presidency.  Defense spending has substantially increased over the last two Republican terms (excluding current term), doubling during the 1980s and 2000s.  Conversely, defense spending has remained stagnant during the prior two Democrat campaigns. Exhibit 1 below highlights defense

Since 1965, the FTSE All Share Index has increased during every tenure of government.  If we use a light-hearted assumption that prior stock market performance is an indicator of future performance, the markets would welcome a Conservative win in today’s U.K. election.  Using a logarithmic scale, the most notable increase came during 1979-1997, where the index increased 10 times in value during a Conservative government.  Since 2010, the index has also risen approximately 1.5x with Conservatives in power.  Labour was in charge during the tech bubble and ’08 financial crisis, which lead to the sideways performance during this period. Exhibit

U.K. equities are trading slightly below their long-term average based on a 12-month forward P/E basis.  Looking at the Datastream United Kingdom Index consisting of approximately 550 constituents, the current forward P/E is trading at a 12.8x multiple compared to its long-term average of 13.3x, yielding a 4% discount. The Labour government was in power during two monumental events during the last 20 years.  The tech bubble of 2000 saw equities balloon to a 22.1x multiple, in sharp contrast to the financial crisis of 2008 which saw equities trade at a 7.4x multiple. As seen in Exhibit 2, U.K. equities

Labour candidate Jeremy Corbyn has pledged to increase the living standard for all citizens and building a ‘fairer Britain that cares for all’.  From increasing the minimum wage to offering free fibre broadband, Labour is committed to improve equality and putting wealth into the hands of many.  Government expenditures have increased significantly under a Labour-led government.  Expenditures as a percentage of GDP increased from 16% to 22% during the 2000s.

Since 1971, the UK corporate tax rate has declined from 40% to 19% today, reaching a peak of 52% from 1973-1982.  Prime Minister Boris Johnson pledged to drop the corporate tax rate further to 17% which was eventually postponed in order to improve public services including the NHS. Labour candidate Jeremy Corbyn has opposed the idea of tax cuts and promised to increase tax against wealthy individuals and “corporate tax-dodgers”, including those who are environmentally unfriendly. Since 1971, on an annual basis, the Conservative government has lowered the corporate tax rate 12 times in total, including four under a Conservative/Liberal

Voters go to the polls on Tuesday in the US midterm elections, where a third of seats in the Senate and all seats in the House of Representatives are up for grabs. The Democrats look likely to win control of the House, while the Senate will probably get a little bit ‘redder’. The president’s legislative agenda would be easier to pursue if Republicans could keep control of both chambers, but, with little in the way of new fiscal stimulus in the pipeline, we do not anticipate a significant change in the economic outlook if they fail to keep the House.

Fathom retains a pessimistic view of the euro area’s long-term prospects, unless progress is eventually made towards transforming the currency bloc into a fully-fledged fiscal union. There are, however, tentative signs of progress in this regard, with President Macron of France proposing a series of reforms to address some of the euro area’s structural flaws. In any case, Fathom acknowledges that the near-term outlook is far brighter, with the union’s strong cyclical upswing expected to continue this year. In few places are the short-term signs more encouraging than in Germany. On a calendar-adjusted basis, its economy grew by 2.5% in

A snap election in Japan would have mixed implications for investors. A renewed mandate for Prime Minister Shinzo Abe would provide political certainty. But that will probably come with an accompanying tax hike that dents economic growth and, in turn, be offset by yet more market-friendly monetary policy. Abe could soon call an October election, Reuters says, citing government sources. That makes sense: his popularity crashed earlier this year but has rebounded amid heightened tensions over North Korea. The shambolic opposition polls far below Abe’s Liberal Democratic Party. It is also too early for one potential rival, Tokyo Governor Yuriko