Market Commentary for the week of Novemeber 7, 2016

It's over
Barring any unforeseen occurrences, we should know the results of the US Presidential election by Wednesday and, hopefully, at least a few of the psychological roadblocks that have impeded market activity might be removed.

While this missive certainly does not purport to be a political science document, our ability to quantify specific market cycles and trends does allow us to draw certain inferences with regard to the durability and magnitude of financial data going forward.  As we approach nearly a decade of economic recovery, it is implausible to envision a scenario going forward without at least some capitulation to the downside following the election.  History has shown a "buyer's remorse" negative bounce occurs frequently in the weeks following a national election, and, quite frankly, no linear up trends can endure indefinitely.  No matter how long or short in duration, volatility is expected to ensue post-Tuesday.

However, this year has thus far proven to be quite satisfactory for investors as most of the global exchanges find themselves in positive territory.  For those who viewed the post-recession period as a long-cycle opportunity to position for capital gains, they achieved their objective of moving valuations from point A to point B with only a modicum of interruption or distress.  But for those others who now might choose more draconian measures... like selling everything and getting out altogether... I would recommend instead a more careful culling of one's portfolio sector-by-sector, region-by-region instead of simply throwing the baby out with the bathwater.  In all likelihood it will take time to figure out which candidate, which platform, will resonate into the longer term calculus.

Thus far this year earnings have reasonably outperformed muted expectations.  Issues which affect earnings acceleration patterns are quite complex.  Sometimes those factors are sector specific, sometimes they are more universal in scope.   There are those who argue that globalization  is the problem.  Others have posited that jingoism and protectionism diffuse growth potential.  Either way, this too is one of those issues that will be addressed by a new political administration.

The Federal Reserve (US) recently adjourned its last meeting without any action to shift interest rates, but indicating nonetheless that rates will move up at some point in the future.  While the threat of inflation is currently quite low, we believe that interest rates must begin to float upwards sooner rather than later....not so much as an inflation safeguard but as a means of creating equilibrium amongst investment choices for those who have a voracious appetite for yield as an alternative to the volatility of owning stocks.  A rebound in rates would also allow for the amassing of savings accounts, which would later serve as the fodder for new capital entering the marketplace.

Recovery

Irrespective of which party wins tomorrow, there is no stopping the tailwind of enthusiasm in specific global demographics such as healthcare and life sciences, biotech, alternative energy, agriculture and water, education, technology, ecology, infrastructure, and national security (military/defense).  Both parties are intent on maintaining a commitment to at least half of those themes listed above.

The private capital markets are actively seeking areas in which direct investment can quench the thirst for solutions and innovation for the next several decades.  Our calculation, therefore, is that the equity markets, public and private, are only at the beginning of a long-term secular phase even if any short-term knee-jerk reactions might indicate otherwise.  It is nearly impossible to put the economic "genie" back in the bottle at this point even if the mood to do so were encouraged.

So, the question we anticipate being asked is," how to cope with the aftermath of Tuesday's election, financially and psychologically?"

While there is likely to be some sort of contradiction and argument following the election's results, all eyes will be on how a true level of reconciliation and cooperation builds amongst diverse points of view.  Our view is that favorable market conditions exist to withstand the inevitable uncertainties, from which will emerge a continuation of the hard-won progress in both cycle duration and portfolio appreciation.