Up, Up and Away?

Election 2016

Contributed by Alan Leist, III

One of the most frequent questions we have received from clients lately is “How will the election impact the markets?” With the FBI investigation of the email scandal on the front page this week, the questions have ramped up. Our job is to position portfolios appropriately in relation to a client’s objectives and the market environment without any political bias. With that in mind, we offer a few non-partisan observations:

• The market is operating under the assumption that the polls are accurate and Clinton will ultimately win come November. The market has liked this scenario simply because the Clinton’s are a known (like ‘em or hate ‘em) entity with a history of tacking towards the middle post-election.
• Despite a common perception that a Republican led administration is better for business and therefore the markets, the data would argue otherwise (for any number of debatable reasons).  According to Bespoke, Democratic administrations have seen over 4% of stock market outperformance vs. their Republican counterparts since 1900.
• A key component of a positive market outcome in November is a continuation of the checks and balances across the executive and legislative branches of government. Investors like slow change not a wholesale shift in one direction or the other. A divided (but cooperative) government helps to ensure that change is managed prudently.
• The real key for stocks over the long-term, no matter who wins in 2016, is cooperation across the aisle to implement pro-growth fiscal policies that complement the historic nature of stimulative monetary policy. We have gone several years without this level of cooperation and the impact of this trend over the next decade could be catastrophic if the status quo is maintained.

Economic Commentary

Contributed by Max Berkovich

May Went Away

Friday’s Non-Farm Payroll report put labor market anxiety to rest. The whopping 287,000 jobs created in June makes up for some of the awful (revised) 11,000 jobs created in May. Though unemployment crept up to 4.9%, that was due to a tick up in labor participation rate to 62.7%. Consensus expectations called for a strong bounce from May, but to only the 180,000 level.

FOMCing

Federal Open Market Committee (Fed) minutes expressed concern about the slowing business investment and the extremely weak May jobs report. June’s report along with a slight bump up in hourly wages will put the Fed at ease, but developments across the Pond should keep talks of rate hikes this summer and fall off the table.

A few nuggets caught our eye in the report:

• The struggling factory sector reported a gain of just 9,000 jobs in June.
• The transportation sector reported a 9,000 loss and Mining jobs also shrank by 5,000.
• The service sector was 256,000 of the 287,000 jobs created in June.