July 12, 2022

In the advent of a Republican taking control of the House in November, all indications are that rather than compromise and triangulate as the Clinton Administration did, the Biden administration is going to implement its agenda through regulations as the Obama Administration did. Hence, we use the performance during the Obama administration as our starting point and adjust our outlook based on the differences that we anticipate. During the Obama years the low interest rate policies increased the multiples which favored valuation over output. The rising P/E overcame the slow earning growth produced by the new normal. Asset values increased faster than the economy. In contrast our outlook for the remaining Biden years is that the rising interest rate will lead to a lower P/E ratio which combined with the tempered regulatory impetus, will result in a faster real GDP growth likely to result in higher asset values. We look for the economy’s P/E ratio to decline.

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