Chuck Royce Remains Optimistic After the Election
The Royce Funds
By Chuck Royce
November 15, 2012
Leading up to and following the Presidential election, clients have been asking for our thoughts on the election and more importantly, on the equity market.
We believe the market rally that we saw in advance of the Presidential election centered on a belief that both parties would ultimately re-commit themselves to fiscal and tax reform in 2013, irrespective of the election’s outcome. While there are legitimate concerns around the fiscal cliff, we think that the market will continue to gain confidence as important policy changes inch closer to being implemented. We also believe that short-term swings in the market are not likely to significantly impede what has been a solid year for equities.
Corporate fundamentals remain very sound—balance sheets are healthy, and valuations are not demanding. The U.S. economy is not without risk, but it is growing modestly with the ever important housing industry in the early stages of what we think is a multi-year upswing. Bonds remain expensive, and investors are showing little concern for the potential loss of purchasing power. Cash is abundant both on corporate balance sheets and in money market funds. In sum, there is plenty of fuel for a lasting rally.
The upshot is that we remain cautiously optimistic about stocks, especially for the long term. The road ahead will no doubt continue to be challenging and even difficult at times—our fiscal condition clearly requires leadership from both political parties that must be more mature and flexible than what has been demonstrated over last two years. However, we expect a more historically normal pattern of growth ahead for both the U.S. economy and equities as we continue our recovery from the most significant economic crisis since the Great Depression.
Important Disclosure Information:
Mr. Royce’s thoughts in this piece concerning the stock market are solely his own and, of course, there can be no assurance with regard to future market movements.
(c) The Royce Funds