If President Biden is re-elected in November, the outcome is likely going to favor growth stocks and Mexico. If former President Trump defeats him, his victory would probably work to the advantage of value stocks like financials, as well as to India, but it would hurt Mexico and the electronic vehicle market.

These and other issues were addressed by Jason Trennert, CEO and chief investment strategist of Strategas, an institutional advisory firm, who spoke in early April at a press breakfast sponsored by Pitcairn, a multi-family office based in Jenkintown, Pa. Trennert spoke alongside Pitcairn’s chief global strategist, Rick Pitcairn, and its chief investment officer, Nathan Sonnenberg. Pitcairn oversees about $7.5 billion for 115 families and recently celebrated its 100th birthday.

The big surprise of the last two years was the resilience of the American economy and its ability to avoid a “universally expected” recession, Sonnenberg said. Labor markets caught financial markets off guard “in a good way,” he added. Consequently, the Federal Reserve isn’t expected to raise rates “until something breaks” or other events necessitate central bank intervention.

Trennant, on the other hand, said the reason the U.S. is doing so well is that the government is running a $2 trillion deficit equal to 7% of GDP in a period of full employment.

The only other two instances since 1945 when the government has run deficits of that magnitude occurred when unemployment was above 7%, Trennert argued. “Fiscal policy is completely at odds with monetary policy,” he continued.

There are obvious questions about how sustainable these huge deficits are, especially if interest rates remain at or near current levels. By next year, the interest expense of servicing U.S. federal debt could exceed defense spending for the first time, Trennert said. And both social service and defense spending are projected to rise in the coming years.

Trennert and Rick Pitcairn both warned about allowing political views to influence one’s investment outlook. For example, Trennert likes energy stocks and it’s natural to believe a second Trump administration would be good for energy companies.

But even that is tricky. Though the first Trump administration’s policies benefited oil and gas companies, energy stocks struggled mightily during that period. In contrast, the Biden administration’s policies have favored green energy businesses at the expense of oil and gas companies—and yet the fossil fuel group has been the “best-performing sector” since he came into office.

Trennert thinks part of this can be explained by the behavior of oil industry executives. “Republican administrations tend to encourage these guys—and they are guys—to spend” their capital resources heavily, and sometimes excessively, he said.

The panel recalled the controversy that emerged several years ago about all the energy demands created by bitcoin mining and then immediately added that those demands would be dwarfed by the energy required to handle the emergence of AI. They doubted that forms of alternative energy like wind and solar would be sufficient to meet these demands and suggested that nuclear power might be necessary to satisfy the burgeoning industry.

Sonnenberg, Trennert and Pitcairn all agreed that the monetary policies embraced since the Great Financial Crisis had resulted in market distortions that lifted equity prices. “We came into this [recent] period expecting three rate increases” but the market was expecting six, Sonnenberg said.

These conditions “make price discovery very difficult,” he continued. With so many Americans invested in the stock market via 401(k) plans and other savings vehicles, “there is a limit to how far the Fed” can allow the stock market to fall.

Another side effect of post-2008 monetary policy is that highly dubious businesses can remain going concerns even when they are no longer viable. Trennert noted that Sears Roebuck was one of the only really large businesses to fail in the last 15 years.

That environment “greatly favored passive management” and narrowed the dispersion of returns, “as everything went up,” Trennert said. It’s “going to be hard to get out of this [easy money world] without pain.”

Sonnenberg noted that Pitcairn had always taken a long-term global perspective. While the firm has overweighted U.S. stocks with portfolios allocating about 65% of assets to them, such allocations can be challenging. Foreign stocks are cheap, he said, not just “compared to U.S. stocks but compared to their historical levels.”

For his part, Pitcairn joked that his “tombstone would say, “Died waiting for non-U.S. stocks to come back.’”