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The Fundamental Things Apply

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On Oct. 25, during the Schwab Impact conference, Ian Bremmer presented his view of the geopolitical winds prevailing around the globe. He then took questions from the audience, and the first was blunt. “How screwed are we if Donald Trump becomes president?” an attendee asked. Bremmer responded, after some nervous laughter from the audience, by saying that “if Trump wins, we are less screwed as Americans,” compared to those in the emerging markets. Trump would pose a problem for U.S. foreign relations, Bremmer suggested, pointing out that the only foreign leaders “who support Trump,” such as Vladimir Putin, are also the “ones who want the U.S. to be weaker.”

So a Trump win, he suggested, “would have implications for U.S. companies around the world.” His counsel, however, was not to worry about a President Trump. After all, “we still have an independent judiciary; we have a Congress that doesn’t do anything. The only thing that would make” a Trump administration really bad for the country, he said, would be “if, God forbid, there was some crisis like 9/11.”

So the improbable has happened, and Donald Trump will be the next president of the United States. It’s now Nov. 14, and since Trump’s surprise victory the stock markets have responded quite favorably, with the DJIA reaching a record high on Nov. 11. Bonds are another matter, with yields on 10-year Treasuries spiking. Of course, if you’re making predictions about the markets, or building a portfolio, you’d better do so with more than five days of data backing you up.

But you knew that already. If you are building portfolios for clients, have their goals changed since Nov. 8? Have the fundamentals of the American economy and American companies changed? You could argue, as Brad McMillan of Commonwealth Financial told me at the broker-dealer’s annual conference on Nov. 4, that the combination of low unemployment and rising wages shows we’re on the brink of a labor shortage. Higher wages and continued low unemployment would lead to more consumer spending, always a good thing for an economy. The stage is now set for an interest rate hike at the Federal Reserve’s Dec. 15–16 FOMC meeting.

It’s arguable, McMillan said, that the Fed has waited too long to raise rates, but it is now doing its level best to “hustle to catch up” with the improving economy. Rather than a Fed inaction, which tends to starve an economic recovery, its action in December could be a confidence builder that may well “kick off top-line growth” in the economy.

McMillan sees the good news on the labor front representing one of his key transitions playing out in the U.S. markets and economy: a transition from a policy-driven to a fundamentals-driven economy. Wouldn’t that be a lovely thing?

The truth is that our republic has dealt with bigger threats than Donald Trump. It’s also true that presidents have less influence and power than we usually afford them, particularly on domestic issues and especially on economic ones. Presidential contenders often temper their policies once they transform from being candidates to actually sitting in the Oval Office, a trend we’re already seeing with Mr. Trump. Timing is often more important than policy in promoting economic growth and market returns, and no single person can be said to be “in charge of the economy.”

I recall the last time we inaugurated a president called Clinton, who was elected partly on the clever sound-bite motto, “It’s the economy, stupid.” From 1993–2000, the economy improved, but it was already doing so under Bush Senior, whose loss in 1992 was helped along by Ross Perot winning 19% of the vote as a third-party candidate.

I hope McMillan is right about the economy, and I hope in our next presidential election we also focus on the fundamentals.

— Read Gundlach: Post-Election Markets ‘Confused’; Avoid ‘FANG’ Stocks on ThinkAdvisor.


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