President Obama's plans to reform U.S. banks will put the brakes on the rally in equities, but not enough to halt the momentum entirely, as overall growth in corporate profits continues to impress, says Carmine Grigoli, chief investment strategist, Mizuho Securities USA Inc.
Although erratic stock market performance is likely to continue as a result of this political uncertainty, we maintain our positive perspective, he said in a note to clients.
Mr. Grigoli noted that fourth quarter profits are exceeding expectations as they roll in this month, while guidance for future quarters is on the rise for the second straight quarter.
He forecasted another 20% increase in S&P 500 earnings in the next four quarters and said surplus cash that is generated from higher profits will be used to repurchase shares and make acquisitions.
The strategist's forecast may have been even higher, were it not for President Obama, whose proposal this month to impose a special tax on banks and to overhaul financial regulations has roiled markets south of the border and elsewhere around the world.
"It appears to us that the President’s proposals would intensify the financial sector’s problems and derail the banking recovery," Mr. Grigoli said.
"These planned changes would lead to lower profits and increased uncertainty and would lessen credit availability without benefiting economic growth."