Investors should keep an eye on US political turmoil

TO many observers, Wall Street's record-breaking performance over the past year has defied conventional logic. Valuations are said to be stretched and, arguably, not justified by an unexciting economic outlook, and now that the US Federal Reserve has signalled that it is slowly transitioning from loose to tighter monetary policy, stock prices have no right to linger at current elevated levels.

Perhaps most important of all, the chaotic political gridlock and constant upheaval in the US's corridors of power witnessed this year are said to strongly suggest that the incumbent administration will find it very hard to deliver on the expansionary fiscal promises that the market had been banking on.

So why is the US equity market still buoyant?