Dear John

October 23, 2019, by Sara McPherson

Chief Economist, John Norris, answers the most commonly asked questions.

Dear John,

What is the biggest threat to your economic forecast and investment strategy moving forward into 2020?

John Norris

First things first, the Federal Reserve is almost always the low-hanging fruit to be the biggest threat to anyone’s economic forecast. However, that is an unsatisfying answer, largely due to there being so much tension in our society and the markets. The Federal Reserve? That old saw? Boring.

However, I don’t think that is what you really meant. So, let me take a stab at what I believe your question actually is: does next year’s Presidential Election have the chance to alter the economy and the markets? My answer is simply: yes, it does, and probably not in a good way.

For as long as I have done this line of work, I have maintained politicians get too much credit for the good times, and too much blame for the bad. This is mostly a true statement, at least true enough for cocktail party conversation when I am trying to brush off questions about politics. But for a tweak here, a regulation or a repeal of one over there, and a European might have a hard time telling the difference between the parties’ economic platforms.

2020 is shaping up to perhaps be a little different.

As I type, it seems the Democratic nomination is Sen. Elizabeth Warren’s to lose. Of course, I fully expect Hillary Clinton to eventually throw her hat into the ring, which could change the landscape just a little. However, assuming Warren is the eventual nominee, the path of least resistance will be to have a very modest economic forecast and take some risk off the table. Another way of putting that is: reduce stock holdings and shift into cash.

This has nothing to do with whether Sen. Warren is a decent person, and everything to do with her economic policies. One can only imagine a President Warren would renew efforts to enact S.915 (116th Congress) – Reward Work Act, H.R.582 (116th Congress) – Raise the Wage Act, as well as S.3348 (115th Congress) – Accountable Capitalism Act.

Despite being well-meaning pieces of legislation, these are pretty aggressive, bordering on a major change in how we live our lives and conduct business in the United States. I am not here to say they are right or wrong, only that they will cause some upheaval and market uncertainty. As you can imagine, there are two things investors hate: 1) upheaval, and; 2) market uncertainty.

As a result, if it becomes apparent Sen. Warren will become President Warren, it will be in our clients’ best interests to take some ‘money off the table’ after a nice run over the last decade. Of course, a lot can change over the next 12 months. I could quit worrying about politics and politicians, and focus, as I always have, on the Federal Reserve.

In fact, I would bet on it.