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Peloton Wealth 2016 Q3 Recap

In case you missed it, financial markets are faring reasonably well in 2016 – despite all the nonsense and negativity spewing from our presidential candidates. The S&P 500 added 4% in Q3 and is now up almost 8% for the year. Bond prices have oscillated due to the Fed’s on-again-off-again stance but have generally returned 3-4% so far this year.

Oil

The price of oil rallied as we predicted – gaining 33% year-to-date. In our Q1 Recap, we said “…but if we had to guess, oil price equilibrium is probably still 25-50% higher ($50-60 per barrel versus $40 today).” I’ll also reiterate our stance on oil’s economic impact: If you were one of those who said that low oil prices were not beneficial to the economy, you don’t get to say now that marginally higher oil prices will hurt the economy. Higher prices have immeasurably helped the energy sector and struggling producers. The relative stabilization after a period of exceptional volatility calms nerves both in the oil patch and also throughout financial markets. We still think that a range of $45-65 is likely, and that’s fine for producers and for the economy.

The burgeoning domestic energy industry is a secular boon for the U.S. and should be considered a significant driver of future economic growth. Our emergence as a powerful marginal producer of oil and natural gas is also very positive because it diminishes OPEC’s ability to control prices for the cartel’s unilateral benefit. We don’t make political predictions, and it’s really difficult to handicap the investment winners and losers from any outcome, simply because no one knows how much of each candidate’s rhetoric can actually be implemented.

Politics & the Economy

Our sense is that neither Clinton nor Trump will turn out to be as bad as for those on the wrong side of their campaign policies. The good news is that very shortly, the election will be behind us, and hopefully we’ll gain clarity on the environment in which businesses and consumers must operate going forward. Uncertainty is bad for business, and it’s bad for stocks. As unknowns are resolved, decision makers (within corporations and households) can make strategic decisions that help them best navigate the regulatory and tax climate facing them.

Entering the first Obama term, many were terrified that anti-business policy would be so pervasive that it would choke the economy and stocks with it. And to be fair, after eight years, the environment is generally less pro-business than it certainly could be, yet stocks have done okay. You could argue (as we would) that in 2008 things were artificially depressed by the Great Recession, so the starting point was extremely low. Would the rebound/expansion have been stronger and faster without certain legislation in place? Potentially. Will that happen going forward? No one knows.

Whoever we end up with as president and whatever his or her policies are, I hope some common sense prevails in the areas everyone agrees need work:

  • tax code simplification
  • immigration reform
  • economic growth
  • job creation

It may be wishful thinking, but it would also be helpful if the incoming administration is less outwardly shaming of American industries, individual companies, and specific individuals/families. As we’ve all seen, good operators can succeed in virtually any climate, so let’s put this circus in the past and get back to business.