“I am moving to (name your favorite non-U.S. country) if that person gets elected” –a common response heard in many conversations we have been having this year.
I can’t remember the last time a presidential election cycle drummed up so much negativity – both on the Left and the Right. The back and forth has been vicious, the topics have hit deep-seated nerves and it has all taken place in a circus-like atmosphere.
The question then becomes: How does this made-for-television-side-show affect the markets and my chances of achieving my financial goals?
In the investment world, we need to distance ourselves from the emotional side of peripheral market influences and focus on where the rubber hits the road. In the case of the presidential elections, we can distill this down to a few key factors:
- The fact that the candidates have not put forth any concrete solutions to the issues at hand is creating an air of uncertainty. A recent survey of CFOs across the country indicated that almost half are putting the brakes on hiring and spending plans until more is known on issues such as minimum wage, immigration and other issues that can directly influence their bottom lines. As Brandon Julio, a professor at the London Business School has said, “If an election can potentially result in a bad outcome from a firm’s perspective, the option value of waiting to invest increases, and the firm may rationally delay investment until some or all of the policy uncertainty is resolved.” BSW notes that this survey is not surprising, given the fact that CFOs have been afraid to pull the trigger on any spending plans for years now – given current growth prospects and the fragile nature of Fed monetary policy.
- No matter who gets elected, major policy decisions need to work their way through Congress, which will likely take some time. At this point in the election cycle it seems unlikely that the outcome of the election will make fundamental policy changes easy to achieve. We would need to see unprecedented levels of compromise between both parties in order for major policy changes to happen – possible, but not probable.
- Policy changes do not happen in a vacuum. A benefit to one sector of the economy can be a detriment to another. We are watching what levers the candidates are potentially going to pull and how that filters down to how corporations run their business and ultimately how this affects the economy as a whole.
The outcome of this year’s elections and the policy implications are important for our country’s future and for investors. Importantly, we have faith that U.S. corporations can be profitable under any administration, they just need to know the rules of the game before they can take the field and score.
As the election cycle grinds on, we expect the candidates to start to crystalize their plans for change. When pie in the sky promises start congealing into plans with actual details, then we can start triangulating towards likely outcomes and position portfolios accordingly.
As always, if you have any questions or comments, or would like to discuss your portfolio in detail, your BSW team is standing by and would enjoy the opportunity.
Thanks for reading!
Craig Seidler, Director Public Investments