Washington Gridlock in 2016 is Great for Stocks

We’re just a few days from 2016. And for leaders in Washington, the next 12 months could be the year of low expectations.

Yes, there was a bipartisan budget deal agreement earlier this month that allowed Congress to spend more of your money. But beyond that, there’s not likely to be much in the way of compromise on Capitol Hill next year.

In fact, Democrats and Republicans have already sent out the signals to their respective bases. This is the year where differences will be both defined, and amplified.

Consider that President Obama has just 13 months left in office, and Republicans control both houses of Congress. It’s no wonder the legislative agenda for the coming session isn’t robust.

During his end-of-year presser, President Obama issued the following signal:

"It’s an election year, and obviously, a lot of the legislative process is going to be skewed by people looking over their shoulders, worrying about primaries, trying to position themselves relative to the presidential candidates."

Congressional leaders have done the same sort of signaling. As House Speaker Paul Ryan recently told NBC’s "Meet the Press":

"What we will probably try to do is, where we can get things done, where we can find common ground without compromising principles, get those things done … Make sure that government works. But we’re going to have one heck of a contrast in 2016."

In Washington-speak, "without compromising principles" and "one heck of a contrast" means one thing …

Gridlock in 2016.

Official White House Photo by Pete Souza

Now, I know that for many people, the idea of gridlock and the inability to "get things done" in Washington is the biggest problem facing our country.

I disagree.

In fact, when it comes to the fate of the financial markets and our money, one of the best things that can happen to us in this election year is for Congress and the president to not enact any new laws, rules or regulations.

You see …

The more new laws, new rules and new regulations designed to govern our behavior when it comes to taxes, the economy, business, etc. …

The more uncertainty gets injected into our investing decisions.

As we enter 2016, we have enough uncertainty to contend with. Think plunging oil prices, high-yield debt defaults, a rising U.S. dollar and uncertain Fed policy.

So, gridlock means we don’t have to grapple with lawmakers deciding to intervene even further into our lives.

President Truman famously called the 80th Congress the "Do-Nothing Congress" because of their failure to act on a numerous issues.

Well, one can only hope the 114th Congress can live up to the Trumanesque monitor.

***

A new piece in The Financial Times is aptly titled, "Why Congress Will Get Even Less Done in 2016."

It suggests there likely won’t be any major legislation rammed through at taxpayer or investor expense.

The major reason, of course, is due to election-year politics.

Per the TFT article:

With the Senate very much in play next November, Senate Majority Leader Mitch McConnell (R-Ky.) says he intends to keep a sharp eye on the measures that come before the upper chamber and how they could play out politically in states where vulnerable GOP incumbents will be on the ballot, including Illinois, Wisconsin, New Hampshire, Pennsylvania and Ohio.

Then we have the aforementioned House Speaker Ryan. He has already taken off the table any efforts to pass his signature issue next year — tax reform.

Even the Congressional calendar next session is reflective of a "Do-Nothing Congress."

Consider that the House of Representatives is only scheduled to be in session for 110 days next year. That means they are "off" for 255 days. That’s far fewer work days than 2015, where they were in session for just 133 days.

One issue on the agenda for Congress this year, besides the usual funding measures for the 2017 federal budget, is the issue of the nation’s mental health system.

Republicans would like to enact an overhaul of the system as an attempt to address the very sobering problem of mass shootings in the country.

While most Democrats are generally in favor of addressing the nation’s mental health system, they also want to enact more gun control measures to address the mass shooting problem.

In election year 2016, you can bet Republicans won’t get near any measure to restrict gun ownership, so most likely the mental health issue might be end up not getting addressed.

Related story: Google, Former NIMH Chief Seek Tech Solutions for Mental Health

***

The real likelihood of a "Do-Nothing Congress" in 2016 means investors will largely be free from any new federal meddling in their decision-making process.

That means we can concentrate on real, fundamental metrics such as revenue, earnings, free cash flow, financial ratios and chart patterns.

In a perfect world, these are the main things that we should have to concern ourselves with when picking stocks, options and ETFs.

Unfortunately, government regulations such as Dodd-Frank … big boondoggle bank bailouts … crazy monetary policy from the Fed … and all sorts of geopolitical events have almost been more important over the past several years than the actual financial metrics.

I think in 2016 the importance of Washington (at least legislatively) will be diminished greatly due to, ironically, politics and the election year.

And that is good news for the 2016 financial markets.

***

Do you think 2016 will be the year of the "Do-Nothing Congress," or do you think the political rhetoric of the 2016 presidential campaign will unduly influence your money?

Please share your thoughts by leaving me a comment on our website or sending me an e-mail.

***

Stocks spiked in Tuesday trade as trades took their cue from rising oil prices and good housing data. By midday, the Dow Industrials were up by triple-digits, and all 11 subsectors of the S&P 500 ended the day in positive territory.

•  Oil prices surged in Tuesday trade, with the price of a barrel of crude surging 2.9% in the session.

•  U.S. home price gains accelerated in October. The S&P/Case-Shiller 20-city composite index rose 0.1% for the three-month period ending in October. That’s a 5.5% yearly gain.

•  U.S. goods trade deficit narrowed slightly in November, with both exports and imports weakening during the month. The trade gap narrowed 1.3% in November to $60.5 billion from a revised $61.3 billion in October.

•  Pep Boys (PBY) spiked 8% on news that billionaire investor Carl Icahn raised his bid for the car parts and repair chain to value it at $1 billion.

Good Luck and Happy Investing,

Brad Hoppmann

Publisher

Uncommon Wisdom Daily

Your thoughts on “Washington Gridlock in 2016 is Great for Stocks”

  1. Thanks, Brad, and your team for the interesting reports. I hope all of you enjoyed the
    Holiday Season, like we did. We wish all of you a very ” Happy and profitable “New Year”.
    Best Regards, Davis Mike Bernier.

  2. In addition to a do-nothing Congress, we need a do-nothing President.

    Remember that there were many things that happened the last four years because we had both a do-nothing Congress and a do-everything President. How’d that work out for you?

    Actually, there is one thing I would like Congress to do: Repeal every Executive Order that is still in effect.

  3. How can we be at gridlock? Unbelievable! Everyone gets a banana box and your out of here!
    We are so ready for a non career politician for president!!!
    And congress better start listening to we the people!

  4. Big things bad can sure happen in presidential election years–lest we forget 2008. Oh, and 2000. And even 1992, post Operation Desert Storm and the attending mini-recession, which also brought us Ross Perot to suck away enough votes to enable a non-majority elected president.

    And this year, we have bonds–not just junk, but the associated CDOs and the web of IOUs based on a promise, and currencies–the action that dwarfs such paltry instruments such as bonds and stocks. The election hasn’t even begun, as you noted, but might there be another stupid “fixer” to change an election? Nader in 2000 did the same to Gore, as well as some chads. Who might our “fixer” be this time?

  5. What is worse than Congress and the President is all the Federal Agencies that are writing the rules and regulations every day on top of all the ones that have been written since we have been a Country. They are the unelected rulers of this USA

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Brad Hoppmann originally grew up in Florida, but has lived in Baltimore, Charlotte and New York as well throughout his career. Always an athlete, he played varsity football and water polo at the University of Florida and received All-SEC/SCC honors.