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Macro Research
Investment Strategy
Economics
Policy Research
Quantitative Research
Technical Research
Fixed Income Research
Industry Surveys
Bespoke Research
Conferences
Sales & Trading
Washington & The
Investment LandscapeDaniel Clifton
February 2020
Economic Volatility Is Translating Into Political Volatility
2
Source: Bureau of Economic Analysis, Strategas
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
22,000
'66 '73 '80 '87 '94 '01 '08 '15
Real US GDP Growth Has Broken From Its Trend Since 2008
Real GDP at 3.1% Growth Rate
Actual Real GDP
$3.1TN Gap
…More Uncertainty: But Uncertainty
Has Been Good For Stocks
5
0.6%
1.7%
3.4%
6.6%
1.1%
2.8%
6.2%
14.1%
1.9%
4.7%
8.4%
20.0%
0%
3%
6%
9%
12%
15%
18%
21%
1mo Return 3mo Return 6mo Return 1yr Return
S&P 500 Returns Following Spikes In Global Policy Uncertainty
Uncertainty Over 200
Uncertainty Over 250
Uncertainty Below 200
Recessions Kill American Presidencies
6
No Recession Two Years Before Re-ElectionRecession Two Years Before
Re-Election
President Recession? Re-Elected? President Recession? Re-Elected?
Obama No Yes Bush I Yes No
Bush II No Yes Carter Yes No
Clinton No Yes Ford Yes No
Reagan No Yes Hoover Yes No
Nixon No Yes Coolidge Yes Yes
LBJ No Yes Taft Yes No
Eisenhower No Yes
Truman No Yes
FDR No Yes
FDR No YesFDR No Yes
Wilson No Yes
Trump’s Favorite Chart:
Going For Growth In 2020
7
30
35
40
45
50
55
2200
2400
2600
2800
3000
3200
3400
10/5/2018 3/4/2019 8/1/2019 12/29/2019
S&P 500 & Trump's Probability of Being Re-Elected
S&P 500 (Left)
Probability of Trump Being Re-Elected
(Right)
Presidents Stimulate The Economy In The Year Ahead of Their Election
8
0
5
10
15
20
25
Year 1 Year 2 Year 3 Year 4
Fed Rate Actions By Presidential Cycle
(1982 - 2019)Total Number of
Rate Hikes
Total Number of Rate Cuts
Stimulus Has Served As A Cushion
To Deal With Election Noise
9
7.0%
6.0%
16.1%
6.3%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
Year 1 Year 2 Year 3 Year 4
S&P 500 Price Returns By Presidential Cycle
(CY, 1948 - 2018)
-4%
-2%
0%
2%
4%
6%
8%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Year 1 Year 2 Year 3 Year 4
Quarterly S&P 500 Price Returns By Presidential Cycle
(1950 - 2018)
Big Pivot By Trump On Trade Policy
10
$10.6
$46.3 $46.5
$22.5
$14.4
$(17.2)
-$30
-$20
-$10
$0
$10
$20
$30
$40
$50
'18 '19 2020: No Deal,Escalation
2020: Deal, RatesUnchanged
2020: Deal, SomeRate Cuts
2020: Deal,Significant Rate Cuts
List 4b Tariffs($160bn at 15%) GoInto Effect For CY
2020
No New Tariffs, AllPreviously EnactedTariffs Remain In
Effect For CY 2020
Round 4a (Sept.2019) Tariff Rate Cut
From 15% To 7.5%1/15/2020, NoFurther Cuts
If All Tariff Rates CutIn Half For CY 2020
Incremental US Tariffs Under Phase One China Trade Deal Scenarios, CY $Bn
Current
Status
Potential Gains From The Trade
Deal Are Halted From Coronavirus
11
6.0
6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8
6.9
7.0
7.1
7.2
Ja
n-1
5
Ma
y-1
5
Sep
-15
Ja
n-1
6
Ma
y-1
6
Sep
-16
Ja
n-1
7
Ma
y-1
7
Sep
-17
Ja
n-1
8
Ma
y-1
8
Sep
-18
Ja
n-1
9
Ma
y-1
9
Sep
-19
Ja
n-2
0
China Renminbi Per US Dollar
US Election
-1.0
-0.5
0.0
0.5
1.0
1.5
Sep '17 Mar '18 Sep '18 Mar '19 Sep '19
10 Yr - 3 Mo Treasury Spread
Potential Gains From The Trade
Deal Are Halted From Coronavirus
12
98
99
100
101
102
103
104
105
Jan '19 Mar '19 May '19 Jul '19 Sep '19 Nov '19 Jan '20
Strategas' China Trade Deal Basket Rel S&P 500
Slowing Manufacturing Jobs Led To a US-China Trade Deal Compromise
13
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
IA TX OH GA NC AZ FL PA WI MI NH MN NV ME CO VA NM
6 38 18 16 15 11 29 20 10 16 4 10 6 4 9 13 5
State & Electoral College Votes (Trump won by 74 votes, 306-232)230 Votes Won Be Less Than 10 Pct Margin For Either Candidate
States With 10 Pct Or Less In 2016 Vote Margin: Pct Change Employment
(BLS, Oct 2019)
3mo Pct Change 6mo Pct Change
Trump +5 to +10
(78 EC votes)Trump +0 to +5
(101 EC votes)Clinton +0 to +5
(33 EC votes)
Clinton +5 to
+10
(18 EC votes)
Other Election Year Policy Issues
14
3.3%
25.6%
8.9%
0%
5%
10%
15%
20%
25%
30%
2008 2012 2016
Strategas Infrastructure Basket Return Above The S&P 500, 1 Year Ahead of
Presidential Election
70
75
80
85
90
95
100
105
Jan '17 Sep '17 May '18 Jan '19 Sep '19
Strategas' Part B Basket Relative to the S&P 1500 & S&P 1500 Health
Care(100 = 12/31/2016)
Relative to S&P 1500
Health Care
Relative to S&P 1500
Spending Plans Vary By Candidate
16
$4.1
$51.0
$30.0
$5.5
$1.0
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
Biden Sanders Warren Buttigieg Klobuchar
Estimated Cost of Candidates Fiscal Plans, $Trillions Over 10 Years
Primary Election Already Impacting
Election Sensitive Stocks
17
20
25
30
35
40
45
50
55
60
6570
75
80
85
90
95
100
105
Jan '19 Mar '19 May '19 Jul '19 Sep '19 Nov '19 Jan '20
Managed Care Rel S&P 500 & Betting Odds Of Warren Or
Sanders As Democratic Nominee
Warren & Sanders' Betting
Odds, RHS
Managed Care Rel S&P 500
15
20
25
30
35
40
45
50
55
60
65
80
85
90
95
100
105
110
115
Mar '19 May '19 Jul '19 Sep '19 Nov '19 Jan '20
Strategas' Progressive Democrat Basket Rel Moderate Democrat Basket & Betting Markets Odds of Sanders Or Warren As
Dem Nominee(100 = 12/31/2018)
Progressive Dem Rel Moderate Dem, LHS
Warren & Sanders Betting
Odds, RHS
Iowa Is Notorious For Stopping
National Front Runners
18
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
-11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1
Avg. Polling Of Four Open Primaries: Front Runner vs. Actual Winner
Avg. Polling Of Dean, Clinton, Guilani &
Gingrich
Avg Polling of Kerry, Obama, McCain, and Romney
Months Before Primary Elections
Frontrunners usually peak right before Iowa and then fall
after losing Iowa
13
42
0
5
10
15
20
25
30
35
40
45
50
1/2019 3/2019 5/2019 7/2019 9/2019 11/2019 1/2020
Democratic Nomination Betting Odds: Biden, Sanders
(PredictIt)
Biden
Sanders
Iowa
Betting Odds Favor Sanders To Win,
Mayor Pete & Amy K. Rising
19
59 58
0
58
23
11
0
10
20
30
40
50
60
70
NewHampshire
Nevada SouthCarolina
California Texas Florida
Bernie Sanders' Lead In Betting Odds
(PredictIt)
-4.6
0.1
-1.2
7.6
2.9
-6
-4
-2
0
2
4
6
8
10
Biden Sanders Warren Buttigieg Klobuchar
Change In New Hampshire Polling Average, Pre- and Post-Iowa
Caucus(RCP)
Bloomberg Enters The Race Soon:
Brokered Convention Possible?
20
25
30
35
40
45
50
11/27 12/4 12/11 12/18 12/25 1/1 1/8 1/15 1/22 1/29 2/5
Betting Odds: Will the Democrats Have a Brokered Convention in
2020?(PredictIt)
LastClick: 45%
25 25
2726
29
27
9
14
21
0
5
10
15
20
25
30
35
September October November December January February
Biden Supporters' Preferred Second Choice Candidate(Morning Consult)Sanders
Bloomberg
Soft Iowa Turnout For Democrats Raises Concerns of Enthusiasm
21
240
171 173
0
50
100
150
200
250
300
2008 2016 2020
Iowa Democratic Caucus Turnout(Thous.)
59
20
0
10
20
30
40
50
60
70
'91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19
"Would You Say You Are Better Off Financially Than You Were a Year
Ago?"(Gallup)
Better Off
Worse Off
Income & Approval Rating Today Suggests Trump Narrowly Wins
22
40%
45%
50%
55%
60%
65%
0% 1% 2% 3% 4% 5% 6%
Real Per Capita Disposable Income Growth & President's Re-Election
Share Of The Two-Party Vote
Carter
Bush I
Bush
Obama
Clinton
Reagan
Nixo
Johnson
Winning
Losing
Real Per Capita DisposableIncome, % Increase, Jan-Oct
Pc
t o
f T
wo
-Pa
rty
V
ote
Trump
40%
45%
50%
55%
60%
65%
70%
30% 40% 50% 60% 70% 80%
Presidential Approval Rating & President's Re-Election Share Of Two-
Party Vote
Carter
Bush I
Bush Obama
Clinton
Reagan
NixonJohnson
Winning
Losing
Presidential Approval Rating
Pc
t o
f T
wo
-Pa
rty
V
ote
Trump
The S&P 500 Has Predicted Every
Election Since ‘84, 87% Since ‘28
23
95
98
101
104
107
110
Ja
n
Ja
n
Ja
n
Feb
Feb
Ma
r
Ma
r
Ap
r
Ap
r
Ma
y
Ma
y
Ju
n
Ju
n
Ju
l
Ju
l
Ju
l
Au
g
Au
g
Sep
Sep
Oct
Oct
No
v
No
v
De
c
De
c
De
c
S&P 500 Avg. Performance: Presidential Election Years & Incumbent Party Outcome
1936 - 2016
Incumbent Party Lost Incumbent Party Won
Stocks Sell Off When The Opposition Party
Wins
Stocks Have Increased Post-
Election Regardless of Party
24
96
98
100
102
104
106
108
Nov Dec Jan Mar Apr Jun Jul Sep Oct
S&P 500 Avg. Performance: 12Mo Following Presidential Open & Re-Election Race
(100 = Election Day, 1936 - 2017)
Incumbent Party Lost
Incumbent Party Won
Markets Are Not Partisan But
Congressional Races Will Matter
25
13.6%13.0% 12.9%
10.8%
9.3%
4.9%
0%
3%
6%
9%
12%
15%
D Senate/RHouse/DPresident
R Congress, DPresident
R Congress, RPresident
R Sen/DHouse/RPresident
D Congress, DPresident
D Congress, RPresident
Partisan Control, Avg. Annual S&P Performance
(1933-2018, Excl. 2001-02)
Senate Races Will Matter For Stocks
26
15
25
35
45
55
65
75
85
Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20
Betting Odds: Which Party Will Control The Senate After 2020
Election?(PredictIt)
Democratic
Republican
Last Click: 34%
2020 Senate Election Ratings
(The Cook Political Report)
Lean
Democratic Toss Up
Lean
Republican
Peters (MI) Jones (AL) Tillis (NC)
McSally (AZ) Roberts (KS)
Gardner (CO)
Collins (ME)
Also keep an eye on the Georgia Senate races (there are two this year).
We expect at least one race to be moved to competitive shortly.
Appendix: Important DisclosuresThis communication was prepared by Strategas Securities, LLC (“we” or “us”) and is intended for institutional investors only. Recipients of this communication may not distribute it to others without our express prior consent. This communication is provided for informational purposes only and is not an offer, recommendation or solicitation to buy or sell any security. This communication does not constitute, nor should it be regarded as, investment research or a research report or securities recommendation and it does not provide information reasonably sufficient upon which to base an investment decision. This is not a complete analysis of every material fact regarding any company, industry or security. Additional analysis would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any particular client and is not presented as suitable to any other particular client. The intended recipients of this communication are presumed to be capable of conducting their own analysis, risk evaluation, and decision-making regarding their investments. For investors subject to MiFID II (European Directive 2014/65/EU and related Delegated Directives): We classify the intended recipients of this communication as “professional clients” or “eligible counterparties” with the meaning of MiFID II and the rules of the UK Financial Conduct Authority. The contents of this report are not provided on an independent basis and are not “investment advice” or “personal recommendations” within the meaning of MiFID II and the rules of the UK Financial Conduct Authority.The information in this communication has been obtained from sources we consider to be reliable, but we cannot guarantee its accuracy. The information is current only as of the date of this communication and we do not undertake to update or revise such information following such date. To the extent that any securities or their issuers are included in this communication, we do not undertake to provide any information about such securities or their issuers in the future. We do not follow, cover or provide any fundamental or technical analyses, investment ratings, price targets, financial models or other guidance on any particular securities or companies. Further, to the extent that any securities or their issuers are included in this communication, each person responsible for the content included in this communication certifies that any views expressed with respect to such securities or their issuers accurately reflect his or her personal views about the same and that no part of his or her compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this communication. This communication is provided on a “where is, as is” basis, and we expressly disclaim any liability for any losses or other consequences of any person’s use of or reliance on the information contained in this communication.
Strategas Securities, LLC is affiliated with Robert W. Baird & Co. Incorporated (“Baird”), a broker-dealer and FINRA member firm, although the two firms conduct separate and distinct businesses. A complete listing of all applicable disclosures pertaining to Baird with respect to any individual companies mentioned in this communication can be accessed athttp://www.rwbaird.com/research-insights/research/coverage/third-party-research-disclosures.aspx. You can alsocall 1-800-792-2473 or write: Robert W. Baird & Co., PWM Research & Analytics, 777 E. Wisconsin Avenue, Milwaukee, WI 53202.
27
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DISCLAIMER: The model investment portfolios discussed in this report have been developed and maintained byStrategas Securities, LLC. Strategas Securities licenses the portfolios to its affiliate, Strategas AssetManagement, LLC, an investment adviser, which either provides the model portfolios to other managers withinvestment discretion, or manages client accounts directly in a manner that tracks the composition of one ormore of the model portfolios. Strategas Securities does not selectively distribute its research reports to anyparticular customer or class of customers – including its affiliates – in advance of other customers that are
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