Blame trade wars and worries about capital investment

Markets aren’t struggling because investors fear Democrats

By BEN WHITE

Markets are not hitting turbulence because investors fear Democrats gaining power on Capitol Hill. Instead, blame trade wars and worries about capital investment.

That’s the view of Ian Shepherdson, chief U.S. economist at Pantheon Macroeconomics, who said on the latest edition of the POLITICO Money podcast that investor concerns are deeper than the Trump administration has been indicating lately.

“Markets aren't dumb. They can read the same polls as everybody else,” Shepherdson said. “They know that at the moment there is a very high probability that Democrats will take the House. I think from a rational market perspective, that news is pretty much in the price at this point."

President Donald Trump and senior members of his administration in recent days have attributed volatility in the stock market to fear that Democrats could make gains in the midterms, including taking back the House.

Shepherdson said much of the volatility instead stems from concern over the impact of Trump's trade war with China and signs of a slowdown in capital investment by businesses that appeared in the recent third-quarter report on gross domestic product.

“I’m going to be one of those people who does complain about the third-quarter number, because it was paid for with a lot of borrowed money which has driven up consumption to an insane 4 percent,” Shepherdson said.

“And it hasn’t really done anything for business capital spending even though the administration said it would. It’s given us a fast-growing, but very unbalanced economy that’s running on sugar, which will run out.”