August 20, 2022

Come November, Republicans are likely to take control of one or both of the legislative chambers. The change in control of one or two of the chambers will slow down the Biden administration legislative process forcing it to veer towards an increase in executive orders and to rely on the administrative state to continuing implementing the BBB agenda. An increased regulatory burden tends to favor the nimbler smaller capitalization stocks. The Biden administration constantly touts the low unemployment rate as evidence of a strong economy. Yet there is another interpretation which we favor. A decline in productivity leads to a combination of low unemployment and slow growth leading to a new new normal rate. We look for the earnings to grow at a slower rate than they did during the Obama years. Monetary policy is the last component affecting our valuation outlook. The Fed policy of a balance sheet reduction combined with fed funds rate hikes and a reduction in its financial suppression policies to fight inflation and normalize interest rates. If successful, the policy will result in a lower inflation and higher interest rates. An improvement in earnings growth albeit lower than that of the Obama years combined with and higher interest rates, i.e., discount rate, translates into a slower rate of asset appreciation that the Obama years. Furthermore, this analysis does not rule out an asset value decline.

You must have an active account to view these reports. You may register for a trial here

Download Complete Report in PDF Format

Download Complete Report in Word Format