Tahoe Market Pulse: The end of the election cycle is near…
November 2, 2016
Of the campaign, that is, and good thing, too. In less than a week the political commercials will finally end. And in the presidential race, well, people are right to ask, "How did it come to this?" And why?
At a recent fundraiser, Hillary said she wouldn't add a penny to the national debt. A nice sound bite and probably an applause line, but if true she would immediately push us into a recession. The federal government is currently running a $500 billion annual deficit.
If Hillary won't add a penny to the national debt, she'd immediately need to find at least $500 billion in tax increases, spending cuts, or a combination of the two. Good-bye economy.
Donald Trump has served up some mind-numbing whoppers as well, including that he'd pay off the $20 trillion national debt in four years (or was it eight?). Think about that. To do so Uncle Sam would have to run surpluses of $20 trillion, all from an annual $4 trillion budget. No way. Simple math.
To their credit stock investors have ignored scandals and outlandish claims to focus on what always matters most for the market — earnings and interest rates. Third-quarter earnings reports are coming out every day and in most cases have been better than expected.
Yes, the bar was set low. Expectations for earnings growth next year are high (13 percent). One reason is that comparisons to this year will look good for energy companies whose profits all but disappeared in 2016 and oil and natural gas prices have rallied.
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As for interest rates, the Fed will likely raise rates in December. That said, conditions do not exist for a sustained rise of any significance, not for years. Not for credit demands, not for inflation.
Over the next two months the market will focus on three things. First, third-quarter earnings reports coming out now and management's guidance for the fourth quarter and next year. Next comes the election.
Historically, the market rallies into year-end no matter who wins. Call it a relief rally. Then the Fed will raise (or not raise) the fed funds rate in December. With the third-quarter GDP growing at 2.9 percent, odds are strong that they will. A boost is already anticipated in today's stock and credit markets. That's why bond yields have been rising for a few weeks.
We'll keep watch. In the meantime, go vote.
David Vomund is an Incline Village-based fee-only money manager. Information is found at http://www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.