2016: Two Charts, Six Words, One Man

We’re in the first-ever global recession caused by too-low oil prices, driving tightening financial conditions, falling earnings, rising inventories, and soggy labor market internals. The Fed is a non-issue – as the economy visibly weakens, there won’t be any more rate hikes, and very possibly a reversal. 2016 will start rough, as the economy weakens. But this unique recession will likely be mild, supported by a resilient consumer. Global equities will likely test the August lows, probably successfully. Low long-term yields are the key to preserving the equity risk premia that put a net under stock prices, and we expect they’ll stay low with no inflation risk and no Fed risk. Assuming oil prices don’t fall so low as to trigger financial contagion or outright geopolitical instability, we can get the rough-patch out of the way in the first half, and then on to recovery. But the wild-card is Trump – a double-risk the markets aren’t currently seeing: one risk if he wins, another if he loses.