Strategas Insight: Policy Matters: The Arbitrage Hiding in Plain Sight

With the August Congressional recess upon us and (believe it or not!) the 2020 presidential election cycle not yet in full swing, we are taking a step back from our regular monthly commentary on the fundamental health of the economy and markets to explore the growing influence of public policy on investment outcomes. Of course, public policy always has had an influence on corporate outcomes. But in general, investors’ attention to this variable largely has been trained on backward-looking corporate reforms such as the 2002 Sarbanes-Oxley Act, with its audit and financial reporting reforms following the bursting of the Tech Bubble, or the 2010 Dodd-Frank Act, addressing Wall Street’s malfeasance in the wake of the 2008 Financial Crisis. Although these reforms are substantive and important, our focus at Strategas has zeroed in on the growing impact government policy activity has increasingly had—not just on the mechanics of business and larger macro issues, but on specific industries and individual companies. This ramp in legislative impact has increased markedly over the past twenty years, but it remains underappreciated (and even misunderstood) by conventional money managers. 

Read the full commentary for insight on earnings, data, macro, and other key factors affecting the US economy.