Let’s Talk About Something Other than the Election

We’re hearing recession-fears in client conversations. The election could induce turbulence, but abstracting from that, the data we most respect are pointing in a very constructive direction. We had a near-recession in Q4-15 and Q1-16. It leaves an inventory overhang behind, but still serves as a mid-cycle refresh. Too-low oil prices caused that near-recession, but oil has bottomed and will move higher. Forward EPS and sales have broken to new all-time highs. Bond yields and long-term inflation expectations are sharply higher from their post-Brexit lows, but only back to the low levels where they started, and we see no reason for them to move much higher. A December Fed rate hike will be a mistake, but with credit conditions having eased considerably, it shouldn’t trigger a recession. We don’t understand the recent quarter’s USD strength, but given the Fed’s gradualism and oil’s rally, we don’t expect it to strengthen further.