However, this was not the victory we saw in 2008. Obama does not have the same political capital as when he entered his first term.The biggest difference is that the Republicans have retained control of the House of Representatives. When Obama won in 2008 it was Democrat-controlled, although the Republicans won it back in 2010.
This will be the focus of controversy in the next few weeks as everyone waits to see what will happen in terms of dealing with the fiscal cliff.
We believe that there will be a compromise reached either before year-end or in January to push the deadlines out on the $600bn of tightening which is currently scheduled for the new year.
There does seem to be some agreement on extending Bush’s tax cuts, which represent a significant portion of the fiscal cliff, for the short-term until greater tax overhaul is discussed, hopefully in 2013.
Overall, just getting the election out of the way is probably a positive for the equity market. The presidential campaign has only served to show the state of the economy in a bad light – and this has taken its toll on consumer confidence.
We expect a positive year for the equity market in 2013, although gains are likely to slow from 2012.
Equity valuations remain very attractive – particularly compared with US bonds. High-yield, high-risk bonds are more expensive than equities.
The question is when will we see the catalyst which makes investors take advantage of this value?
While we saw strong outperformance from equities in the third quarter, I think this would need to persist for a good deal longer: there is always something of a herd mentality about moving from one asset class to another.
In terms of the economy, we know we are not going to see a rapid turnaround, but we are optimistic that GDP can continue its slow pace of about 2 per cent next year.
We are a bit worried about the beginning of 2013 given fiscal uncertainties and a tough 1Q 2012 comparison which was boosted by an exceptionally mild winter.
However, the housing sector is picking up – and we believe this will have a positive effect on the consumer; we are finding a number of good opportunities in consumer discretionary stocks which should benefit from the confidence this brings. We also expect it to be positive for financials.
What is most encouraging about conditions today is that it is now a stockpicker’s market – the correlation that dominated stock performance a year ago has completely reversed – and this has been very positive for our portfolios given our bottom-up approach.
Joanna Shatney is head of US large cap equities at Schroders. The views expressed here are her own.