Investors around the world say President Barack Obama is bad for the bottom line, even though U.S. corporations are on track for the biggest earnings growth in 22 years and the stock market is headed for its best back-to-back annual gains since 2004.
Pessimism about the impact of Obama’s policies on the investment climate is common to respondents everywhere, the latest Bloomberg Global Poll shows. At the same time, those outside the U.S. have favorable views of the president himself, while U.S. investors overwhelmingly have an unfavorable view, according to the quarterly poll of Bloomberg subscribers who are investors, analysts or traders conducted Nov. 8.
The respondents also say the Republican victories in midterm congressional elections, which gave the party control of the U.S. House of Representatives, will be good for business. Pluralities anticipate lower taxes, an improved investment climate and better stock market returns.
“This administration has swallowed and communicated the ‘new normal’ line far too deeply,” says poll respondent Sassan Ghahramani, 47, president and chief executive officer of SGH Macro Advisors in New York. “More important than even the dispute over tax policy and whether his concrete policies are pro-business or not is his inability to strike an optimistic chord on the future competitive prospects of the U.S.”
Investors are evenly split over their overall impression of the president, though 62 percent of those in the U.S. view him negatively. Worldwide, 63 percent of all respondents say his policies are detrimental to the U.S. investment climate. That number increases to 68 percent among U.S. investors, even though the Standard & Poor’s 500 Index has risen more than 43 percent since Obama was inaugurated in January 2009 and corporate profits have rebounded almost to the pre-recession peak reached in 2006.
Obama, 49, inherited an economy roiled by financial crisis and a recession that was the longest and deepest since the Great Depression. Gross domestic product growth for 2010, which was forecast to average 2.1 percent the week before he took office, is now expected to average 2.7 percent, according to median estimates from a monthly survey of economists by Bloomberg News.
Among the 452 companies in the S&P index that had reported third-quarter earnings by Nov. 10, profits were up a share- weighted average of 32 percent since a year earlier, with more than two-thirds of companies outpacing analysts’ expectations.
Rescue of Economy
The president gets little credit from investors for measures he oversaw to rescue the economy, including the continuation of a bailout of the financial industry begun under President George W. Bush, an expansion of the help for U.S. auto companies and the enactment of an $814 billion stimulus package. Only 1 of 6 investors says the Obama administration’s policies have been primarily responsible for the performance of the stock market or economy.
“The uncertainty around the administration’s approach to dealing with businesses and the lack of clarity on taxes has created an environment where companies are less likely to make incremental investments, which in turn is bad for future corporate profits and hence the investment climate,” says poll respondent Quinten Stevens, 46, managing partner of Stevens Asset Management LLC in Darien, Connecticut. “Hopefully, the recent election results will be a powerful wake-up call to significantly change their approach towards the private sector.”
No Broad Impact
While respondents are bullish about some aspects of the Republicans’ gains in the elections, they don’t expect the political shift to have a broader economic impact. More than half of all respondents say they believe Republican control will have little or no effect on job growth or the availability of credit. A 41 percent plurality say the change in party control won’t have much impact on the overall economy.
The shift of the House to Republican control “generally is considered positive by markets but in reality the impasse in the decision-making process will delay any of the major structural reforms the U.S. economy needs,” said poll respondent Sergio Pigoli, 52, president of Pigoli Consulenza, an advisory firm in Milan, Italy.
Investors are split on the consequences of the Republican House majority for the budget deficit, which was $1.29 trillion in the 2010 fiscal year that ended Sept. 30. Thirty-six percent see a positive effect, 24 percent a negative effect and 31 percent little or no effect.
2012 Presidential Race
When Americans next elect a president in 2012, a 2-to-1 majority of U.S. investors say a Republican in the White House would be the better outcome for the economy. A plurality of investors in Europe and Asia believe an Obama re-election would be best for their regions’ economies. Yet more than half of investors worldwide say they believe Obama is destined to be a one-term president.
The poll was conducted less than a week after the Nov. 2 midterm elections, which gave Republicans at least 60 seats in the House and six seats in the Senate, the biggest swing in the party’s favor since 1938.
With the White House and Senate still under Democratic control, three-quarters of investors would like to see the two political parties working together, even if it means compromising their principles.
They also aren’t giving congressional Republicans an unequivocal mandate: Investors are split evenly on their appraisal of that party, with 44 percent holding a favorable view and 44 percent unfavorable. Congressional Democrats come out worse: 57 percent negative, compared with 31 percent positive.
This ambivalence applies also to the presumptive new speaker of the House, Republican Representative John Boehner of Ohio. About one-third have a favorable view of him, a little more than one-quarter have a negative view and more than 4 of 10 investors have no opinion. He does better among U.S. respondents, with a plurality of 47 percent holding a favorable view.
Regarding one of the most immediate questions facing Congress, almost two-thirds of investors believe a failure by lawmakers to extend the Bush-era income-tax cuts before they expire Dec. 31 would damage the U.S. economy and stock markets. The view is shared across all regions, though it is strongest in the U.S.
“Any reversal of tax cuts will depress disposable income at a junction critical to the U.S. economy and have a negative effect on the still-fragile economic growth rate,” said poll respondent Constantine Thanassoulas, 57, chief executive officer of Premier European Capital in London.
U.S. investors and their counterparts in other regions diverge over how Congress should handle the specific elements of the tax cuts and other financial issues.
More than 6 of 10 U.S. investors believe it would be best if Congress adopted the Republican proposal to extend the tax cuts for all income levels, including wealthy families. Only 3 of 10 investors outside the U.S. believe the cuts should be continued for all taxpayers.
Pluralities of investors based in Europe and Asia believe it would be best to extend the tax cuts only for families making less than $250,000 per year, as Obama and most congressional Democrats advocate. Almost a quarter of investors outside the U.S. believe all the Bush tax cuts should expire -- a solution espoused by former Federal Reserve Chairman Alan Greenspan as a way to curb the deficit -- while only 10 percent of U.S. investors say so.
Among U.S. investors, more than half may sell assets to lock in the current 15 percent capital gains tax rate. If Congress fails to act, that rate would rise to 20 percent.
Already, 7 percent of respondents say they have sold assets to avoid an increase in the capital-gains tax. Another 21 percent say they plan to do so before the end of the year while 28 percent are waiting to see how the tax debate unfolds in Congress.
Investors in the U.S. and elsewhere also are split on whether Congress should follow Republican leaders’ call to roll back the Obama-supported financial regulatory overhaul enacted this year. The measure includes the creation of a Consumer Financial Protection Bureau and new rules governing the trading of derivatives.
Majorities of investors in Europe and Asia said a rollback is a bad idea while a 47 percent plurality of U.S. investors said it is a good idea.
The poll of 1,030 Bloomberg subscribers was conducted by Selzer & Co., a Des Moines, Iowa-based firm, and has a margin of error of plus or minus 3.1 percentage points.