Marcus Financial Advisors Newsletter
October 2016
A Charitable Halloween
Trick-or-Treat at a retirement home or nursing facility
This is a win-win for everyone! The residents LOVE seeing all the little kids in their costumes and
the kids love how it makes them feel to do something for someone else. Very satisfying! Call your
local facility to see the dates and times.
Hospital Halloween
Visit the pediatric ward of your local hospital with little gift baskets. Being in the hospital on one
of the best holidays of the year for kids has got to be tough!
Carve an extra pumpkin for a friend or elderly neighbor
Make it a tradition to carve an extra pumpkin each year then find someone who wouldn’t
normally carve one for themselves. Perhaps a widow/widower or an elderly couple. I’m sure they
would be touched and excited by the gesture.
Happy Haunting
Election 2016
Jonathan Marcus
So far during this election cycle, we have discussed the election
in the context of market volatility but not as the monthly
feature. With the election nearly upon us, there are several
keys insights to be addressed.
On September 15, 2008, Lehman Brothers filed for bankruptcy
protection. Though the pain of the Great Recession was most
acutely felt those eight years ago, we still experience the
aftershocks today. Historically low interest rates have benefited
investors with exposure to risk assets, such as stocks and real
estate, while simultaneously penalizing those with their savings
in cash accounts, bank CDs, and US Government bonds. Those
with extra money to invest have generally been rewarded, but
middle-income households feel left behind. Therefore, it should
come as no surprise that 63% of Americans believe the country
is on the wrong track, according to a RealClearPolitics poll, and
why anti-establishment candidates, such as Donald Trump and
Bernie Sanders, performed so well in this election cycle. When
we add in the continued economic shift from manufacturing to
services coupled with technological disruption, the acerbic tenor
of the primaries and the general election make more sense.
As of the time of this writing, polls show Hillary Clinton with a
clear lead. FiveThirtyEight gives Ms. Clinton an 86% chance of
winning using their polls-only forecast. Because the design of
our political system creates checks and balances, it is unlikely a
Democratic White House would enjoy full Congressional support
as the House of Representatives is likely to remain in Republican
control. Currently, Republicans enjoy of a majority of 246 seats
to 186 for Democrats and 3 vacancies. Democrats would need
to pick up 32 seats in the House to win control, which is unlikely
unless a landslide Clinton victory helps other party candidates
downstream. In the Senate, the margin is thinner. With a
Republican majority of 54 seats to 46, a 4 seat swing could give
Democrats control of the upper house. FiveThirtyEight’s pollsonly forecast gives Democrats a 67% chance of winning control
of the Senate. If Mr. Trump were to win the presidential
Key Points
 Market impact is likely to be
more muted than campaign
rhetoric implies.
 Divided government ensures no
leader can unilaterally implement
his or her policy ideas.
 Regardless of the election
outcome, investors should expect
a recession at some point in the
next four years.
Performance Year to Date
Returns
Weekly
YTD
S&P 500 Index
0.4%
6.6%
Dow Jones Industrial
Average
0.1%
6.4%
NASDAQ Composite
0.8%
6.0%
Hang Seng (Hong Kong)
0.8%
10.5%
Shanghai Composite
(China)
0.4%
-14.5%
MSCI EAFE (non-US
developed markets)
0.5%
0.5%
MSCI Emerging Markets
1.6%
17.4%
Barclays US Aggregate
(bonds)
0.3%
5.4%
BofA Merrill Lynch 3-Month
Treasury Bill (cash)
0.0%
0.3%
Source: Nuveen, Morningstar Direct and
Bloomberg as of 10/21/2016. All index
returns are shown in US Dollars. Index
returns include reinvestment of income and
do not reflect investment advisory and other
fees that would reduce performance in an
actual client account. All indices are
unmanaged and unavailable for direct
investment.
election, it is unlikely Democrats would win the 32 necessary seats in the House as the Republic vote could
also be strong for the House as well as the Senate.
Source: US House of Representatives, US Senate, J.P. Morgan Asset Management. Data are as of September 9, 2016. For illustrative
purposes only.
With this in mind, let us consider two potential scenarios for the upcoming election:
Scenario 1: Hillary Clinton wins the presidential election but with Republicans retaining the House (and either
Republicans or Democrats controlling the Senate). This scenario could be considered a status quo outcome.
Scenario 2: Donald Trump wins the presidential election with Republican majorities in the House and Senate.
If Hillary Clinton wins but faces a Republican controlled House, we would expect little change to the gridlock
that has overtaken Washington. Republicans would be unlikely to support expansionary fiscal policy or tax
increases on the wealthy. How Republicans would choose to partner with a Clinton White House may depend
on any party retrenchment after putting forth Mr. Trump as a candidate – if party leadership feels a Trump
candidacy hurt the party in this election, they may be more willing to find common ground on immigration
reform or corporate tax reform. In the table below, we take a look at several sectors and industries in the
context of Ms. Clinton’s platform.
SECTOR
Trade
IMPLICATION
Current agreements remain in place; potential for action on new
version of Trans Pacific Partnership (TPP), but anti-trade wing of
the Democratic party will stall any TPP action
Health Care
Congress will keep ACA subsidies in place, benefiting hospitals,
Medicaid HMOs; pharmaceutical companies will face pricing
pressure and drug costs will be targeted
Infrastructure spending is likely to rise, increasing demand for raw
goods and construction expertise; any infrastructure deal is likely
Infrastructure
to contain a large boost for information infrastructure, potentially
benefiting some technology companies
Energy
Increased regulation of fossil fuels, especially on fracking; possible
increase in federal spending on alternative energy development
Consumer
Expanded earned income tax credit and maintained safety net
programs to boost spending by low income households; a federal
minimum wage hike could increase consumer spending but would
also hurt retailers and restaurants
Agriculture
Immigration reform could increase supply of, and bring certainty
to the legal status of, temporary laborers.
Source: Cornerstone Macro, Strategas Research Partners, Washington Analysis, J.P. Morgan Asset Management; data are as of
September 9, 2016. Comments reflect the candidate’s policy stance and proposals and do not consider the likelihood of enactment
of these proposals. For illustrative purposes only.
If Donald Trump wins we should expect even greater uncertainty in part because of a lack of specificity
pursuant to his actual final policies but also because of any challenges he might face when trying to pass these
proposals through Congress, even one controlled by Republicans. Some of these proposals include arresting
and deporting undocumented workers, declaring China a currency manipulator, exiting and renegotiating
NAFTA, and repealing the Affordable Care Act (ACA) to name just a few. Whether one agrees with Mr.
Trump’s proposals or not, changes of this magnitude that affect trade and the economy as a whole could
create heightened uncertainty and therefore volatility. In the table below, we take a look at several sectors
and industries in the context of Mr. Trump’s platform.
SECTOR
IMPLICATION
Trade
Companies with international supply and assembly chains
may have to rethink locations; prices of consumer goods and
business inputs likely to be hurt the most
Health Care
ACA repeal likely to hurt hospitals and HMOs as they lose
subsidies; pharmaceutical companies are likely to benefit as
pressure to lower drug prices is diminished
Infrastructure
Energy
Consumer
Financial Markets
Security
Significant disagreement between Republican factions;
highway restoration bill likely and would benefit industrial
firms
Less regulation of energy extraction could open up new areas
for energy exploration; energy transporters likely to benefit
as Keystone and other similar projects are likely to be
approved
Simplified consumer tax code could increase consumer
spending; firms paying minimum wage likely safe from a
mandated wage increase
Lower corporate tax rates could boost earnings for
corporations; increases in federal debt could push interest
rates higher
Private security firms and prisons would likely be called in to
assist with immigration policy changes
Banks
Regulatory relief likely for small and community banks; tax
increases on certain activities likely
Gold
Heightened global risk and higher federal deficits likely to
make gold more attractive as a safe asset
Source: Cornerstone Macro, Strategas Research Partners, Washington Analysis, J.P. Morgan Asset Management; data are as of
September 9, 2016. Comments reflect the candidate’s policy stance and proposals and do not consider the likelihood of enactment
of these proposals. For illustrative purposes only.
Markets prefer certainty to uncertainty, and Mr. Trump’s proposals represent greater uncertainty, so we
expect greater volatility with a Trump victory. Given the strong polling data for Ms. Clinton, a Trump victory
would also be surprising, so markets might react strongly to that result. In the end, markets care about
fundamentals more than elections. Corporate balance sheets and earnings have been strong, inflation has
been low, and interest rates have been low, too. The threat of recession appears minor, but we should not be
complacent. As investors, we want to earn returns during good years, but we know those good years will end.
Now is not the time for panic; rather, it is time for prudence. Were the current expansion to continue through
the end of the next president’s term, it would be the longest expansion on record. The table below shows the
lengths of economic expansions categorized by their number of months. Currently, we have enjoyed a rather
long period of expansion, but we are not yet in record-setting territory. By the end of the next presidential
term, we would be.
The Number of Expansions Lasting Each Number of Months
Source: NBER, J.P. Morgan Asset Management; data are as of September, 2016. For illustrative purposes only
Past is not necessarily prologue, but betting against history is a challenging prospect. Earlier this year there
were large concerns an economic decline in Europe and China could result in global recession. Though
January and February may feel farther in the past than they were, we are not long removed from the very real
risk of a global slowdown. Not all is doom and gloom – the pending election or a potential recession at some
point in the future should not justify drastic action. The goal of a prudent, disciplined approach to investing is
to participate in the later stages of an expansion without upending one’s goal plan during a market downturn.
With this in mind, we continue to recommend lower volatility stocks as a core position in portfolios and
maintain a relatively modest expectation for stock returns over the next 5 years.
Thank you again for your continued trust and confidence in us.
Personal Section
September has traditionally been a month when Deb and I try to do a bit of traveling. This September we hit
both upstate New York and Cape Breton, Nova Scotia.
Many years ago, we took the kids to the races at Saratoga Springs, New York. I think we even bet on a few
races and might have even won a dollar or two. It was so long ago neither of us can recall the outcome other
than a good time was had by all, especially when the horses thundered past the rail right next to us, as the
crowd behind us roared.
This time our interest was not in horses. It was in MUSIC! As lovers of Irish and Celtic music we got wind of a
two-day music festival in Saratoga Springs. The drive from central Vermont to Saratoga Springs was a mere
two and a half hours. The areas surrounding the Mohawk and upper Hudson River are lovely and quaint. We
secured a room at a historic B & B and spent two nights in the President Grant room, in which he was
supposed to have slept. If indeed Grant stayed there we surmise he wasn’t the tallest of presidents. The fourposter canopy bed was quite small but exceedingly soft. At the county fairgrounds, we thoroughly enjoyed
fourteen hours of music from varying groups ranging from individual balladeers to full scale headliners such as
Gaelic Storm to the Schenectady Drum and Pipe band resplendent in full Scottish regalia. Yes, it was a bit
humorous when the Schenectady bagpipers marched down the main walkway at the fairgrounds blowing
Scotland the Brave for all they were worth. The genial balladeer’s soft and lilting ballads suddenly were laced
with curses about the f---$#@**&---ing bagpipes! The highlights for us were the featured performers in the
evening, each group with its unique style, fans, and sound. Most of these musicians are still trying to make it
big in the industry, thus they spend time after their performance chatting with us, selling T-shirts and CDs, and
posing for group hugs and photos.
Later in September, we traveled to Nova Scotia. Back in 2001 Jon asked that we take a short family vacation
to Cape Breton. We are not quite sure what motivated Jon to make this request for his high school
graduation, but we have him to thank for introducing us to the wonders of Cape Breton! We had a most
wonderful time driving the Cabot Trail clockwise around Cape Breton enjoying the stunning scenery, eating
great seafood, and experiencing some truly great Celtic musicians. Deb and I decided to return to Cape Breton
to celebrate our 36th wedding anniversary.
While there has been new home development along the western shore of Nova Scotia, the majority of the
landscape remains untouched and absolutely beautiful in its natural, rugged state. The folks there are as
charming and friendly as we recalled 15 years ago. With the strong exchange rate favoring us in the U.S., it is
hard to resist such travel temptation. Deb enjoyed a few day hikes along the coast without seeing a soul,
while I tried my hand at golf at Cabot Links and Cabot Cliffs, two outstanding courses in the town of Inverness,
which has now become a mecca for golfers worldwide. Deb and I compared notes each evening as we dined
on local seafood while listening to live, traditional ceilidh music at our lovely inn, Glenora, a working whiskey
distillery.
Deb cruised the Cape Mabou Highlands Hiking Trails for two days. These beautiful trails, lovingly maintained
by the Cape Mabou Highlands Hiking Club, follow the rugged coastline from Mabou to Inverness. The trails
follow a traditional path that once linked remote coastal homesteads and connected neighbor to neighbor 150
years ago. Deb’s hikes alternated between coastal cliff trails hundreds of feet above the crashing waves of the
Northumberland Strait to attractive upland woods trails of maples, birch, oak and crisscrossing moose
tracks. As this was midweek and off-season, Deb was the only one who signed in on the trail register each
day. Deb’s highlight was enjoying lunch and the view in solitude from the top of Beinn Bhiorach (Steep
Mountain).
My golf experiences were both spectacular and exceedingly challenging. Day one was fine with very little wind
and mild early fall temperatures. The Cabot Cliffs course does, indeed, follow the cliff edge with stunning
views on virtually every hole. Day two on the Cabot Links course was a different story. Playing in 50 mph
winds along the shore did the trick, and I may have picked up (or invented) a few handy Gaelic expressions as I
was nearly blown off my feet time after time. I had signed up for another round after the morning 18 holes,
but I called it a day after recording my highest score in over ten years. I patiently waited for Deb to pick me up
while I licked my wounds in the panorama lounge overlooking the course and the ocean with my fresh seafood
chowder and a local beer (or 2).
Many of you may have seen news coverage of the death of Thailand’s King Bhumibol. Interestingly, the King
was born in Cambridge, MA in 1927 and spent his early years in America, even summering in Gloucester. We
have long been aware of the Thai people’s high regard for their King and his family. Kate has been sharing
with us her observations on the loss of the King from Bangkok, where she has lived and worked as a teacher
for many years. She reports, “I don’t think any news article can truly express how deeply the Thai people
loved this man. He was their King for 70 years. Most people don’t know a Thailand without him. He had the
kind of love and respect from the people that no matter what people were fighting about, if he would ask
them to stop, they would pack right up and go home. Most of the time he tried not to take sides in political
conflicts or get involved when things became rocky between the red shirts and yellow shirts (political
protestors) in the past.” Indeed, news reports during recent periods of civil unrest have often noted the
presence of the King in the background as a voice for reason and regard for all the Thai people, urging them to
go back home to their families and live peaceful lives. The people have listened and conflicts subsided (even if
they are not truly resolved). Kate continues, “I guess the best way to describe the situation is that many Thai
people thought of him as a father, and it’s like their dad died.” We are sure to hear more about how Thailand
copes with the loss of this beloved figure when Kate visits us over the winter holiday. We can’t wait to see
her!
Chet and Debbie Marcus
Jonathan Marcus
Chet Marcus
CERTIFIED FINANCIAL PLANNER™
Co-Branch Manager
[email protected]
CERTIFIED FINANCIAL PLANNER™
Co-Branch Manager
[email protected]
Marcus Financial Advisors
266 Cabot Street
Beverly, MA 01915
978.921.1686
Gail Cass
Client Service Manager
[email protected]
JoAnn Middleton
Director of First Impressions
[email protected]
Debbie Marcus
Client Service Manager
[email protected]
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those of Jon Marcus and not necessarily those of Raymond James. The S&P 500 Index is a capitalization-weighted index of 500
stocks designed to measure the performance of the broad domestic economy. The Dow Jones Industrial Average is a price-weighted
average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. The Nasdaq Composite is a stock market
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