West Oak Capital, LLC
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October 2016

We welcome your call or email if you have any thoughts you would like to discuss.

Byron, Lisa, Jerry, Tony, Darin and Ian
Capital markets have been remarkably well-behaved in light of the uncertainties posed by world events this year.  Stocks and bonds are generating positive results for investors, oil prices have stabilized and our domestic economy continues to trudge along with modest gains.  The Federal Reserve has delayed efforts to raise interest rates, while the official unemployment rate has eased to a mere 4.9 percent.  Given that relatively encouraging backdrop, attention is increasingly focused on the polarizing U.S. election and the potential for some extreme changes in government policy favored by the candidates.
This Presidential election has felt especially cringeworthy.  Never in history have both candidates for our nation’s top seat reached this late stage in the campaign with such unfavorable ratings.  There are more debates and a lot of opportunity for political drama between now and election day.  Here are the current standings:
  • President – The race between Hillary Clinton and Donald Trump is very close heading into the final weeks of the campaign, although Wall Street forecasts are almost entirely based upon a Clinton victory.  If Trump wins, it would likely be a “surprise” to the capital markets.  
  • Senate – Republicans currently have a slight majority in a Senate that is comprised of 54 Republicans, 44 Democrats and 2 Independents.  There are 24 Republican seats and 10 Democrat seats up for election this year.  Eight of those races are considered close.  While Democrats are expected to gain seats, it remains uncertain as to which party will have the majority. 
  • House of Representatives – Republicans have a majority in the House with 246 of the 435 seats.  All House seats are up for election, but only 25 races are considered battleground campaigns that are too close to call.  It is widely expected that Republicans will retain majority of the House.
Economic forecasts appear to be based upon an assumption that neither political party will wind up in control of the Presidency, Senate and House.  Perhaps, that is one reason for the relative calm in the markets in recent months, in spite of heated rhetoric from campaign trails.  A divided government suggests the most extreme policy ideas will not get passed, and greater compromise will be necessary for legislative changes.  However, there are some important areas of potential political bias that only require nomination by the President and confirmation by the Senate: 
  • The Supreme Court – The justices are evenly split along perceived party lines, so filling the current vacant seat will be highly consequential.  If the President and Senate majority are of the same party, it increases the chance that the deciding vote for a new Supreme Court justice will represent their political views.
  • The Federal Reserve – Janet Yellen is mid-way through her four-year term as Chair of the Federal Reserve.  Donald Trump has been critical of the Federal Reserve and its stimulative monetary policy, while Hillary Clinton advocates a plan to increase central political authority over the Federal Reserve and reduce the influence of the 12 regional federal banks.
Taken at face value, campaign ideas suggest several industries might be affected by the policy priorities of a Clinton or Trump presidency.  Expanding the Affordable Care Act poses a risk to insurance, pharmaceutical and medical products companies.  Heightened regulatory uncertainty is a threat to banks.  Opposing views on the use of fossil fuels are challenging energy companies.  Renegotiating trade agreements would be unsettling for big, multi-national companies that rely on those trade deals when doing business overseas.  Raising the minimum wage and requiring new employee benefits affect a broad swath of retail, hospitality, food service and other sectors of the economy.  On the positive side, corporate tax and immigration reform would favor technology companies that hold trillions of dollars outside the U.S. and crave workers with advanced computer degrees increasingly held by Indian and Chinese workers.  Both candidates favor rebuilding infrastructure and military.  The policy agendas expressed by the two candidates represent an enormously wide range of possibilities, yet neither of the agendas is expected to be realized in its current form.  The political machine typically grinds up raw ideas into highly compromised versions by the time they become law.
The most politically charged campaign rhetoric rarely makes its way into legislation.  A lot of the sharp edges will probably get rounded off after the new President takes office in January.  While there is a risk that nothing changes, and there is a risk that something big changes dramatically, we believe the most likely scenario is somewhere in the middle.  Our government has grown to represent roughly one-fifth of the nation’s economy.  The new administration’s effectiveness will depend upon its ability to operate within an enormously complex political enterprise already entrenched across the country.


Past performance is not indicative of future results. The information contained in this report is based on internal research derived from various sources and does not purport to be statements of all material facts relating to the items mentioned. The information, while not guaranteed as accuracy or completeness, has been obtained from sources we believe to be reliable. Opinions expressed herein are subject to change without notice.
West Oak Capital, LLC
2801 Townsgate Road, Suite 112
Westlake Village, California 91361
Ph. 805.230.8282, Fax 805.230.8283
Copyright © 2016 West Oak Capital, LLC, All rights reserved.

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