The election for the next president of the United States is over a year away, but don't think the market isn't worrying a bit about it right now.
Look at the political-related headlines that continue to blurt out. The frontrunner for the Democratic nomination is having her credibility attacked due to suspect emails. Vice President Joe Biden hasn't officially declared, so currently we are left with Clinton and all her baggage as the possible leader of the free world.
Then on the Republican side, well, what hasn't been going on. Donald Trump as the next POTUS? Yeah? Even if Trump loses out on his bid to be on the $100 bill, look at the rest of characters who stand to go up against Clinton or Biden. Certainly all very qualified folks, but like Clinton they are lifetime politicians. That means the potential for four more years of getting nothing done in government. I guess in that regard we could use Trump.
But whoever wins the race for the White House, there are some serious issues that will need to be addressed. The market is fully aware of this, and may be starting to take notice. Moreover, CEOs and CFOs of public companies are aware of the issues facing America, and I can tell you there is a sense of caution in their voice when asked about all the candidates out there.
Here are three issues that the market may be fretting over because, honestly, there is more at play than the yuan devaluation and concerns on Apple's holiday quarter. Tired of all the incessant focus on Apple (AAPL), Facebook (FB), Twitter (TWTR) and Alibaba (BABA), most investors don't have a clue what these companies do (and that includes Apple), and most pundits only know the surface issues. So why not talk about other companies, such as Chipotle (CMG).
About those issues ...
Social Security: The next POTUS will unlikely be able to skirt this issue. Actually, Chris Christie already has said he is in favor of raising the retirement age over time. Nevertheless, we as a country are looking at the retirement of 76 million baby boomers, and with it they are becoming Social Security collectors. Unfortunately, the current working class isn't big enough to cover the boomers. So, the next POTUS will have a few options that will have negative effects on the U.S. economy: (1) lowering of benefits for seniors; (2) benefits are means-tested; (3) benefits are delayed, and older people will need to work longer. As for some of the consequences, pick your poison: (1) people save more today because they know Social Security will not be around in their lifetime, which depresses the economy today; (2) reduce one's cost of living today; (3) debt is paid down and avoided -- sorry American Express (AXP), Visa (V)and MasterCard (MA) shareholders.
The illegals: We all know where Trump stands on illegal immigrants. But here is the blunt truth without the Trump bravado: illegals are part of the workforce, they are cheap labor and help to keep costs down for some businesses (see story Thursday in the WSJ on farming industry). The next president is likely to be firm on illegals, which will raise the cost of business for many companies. According to Pew, the size of the illegal immigrant workforce stands at 5.1% of all workers. The total number of illegal immigrants has fallen from a peak of 12.2 million in 2007 to about 11.2 million in 2012.
What is the real endgame with Obamacare: Yeah, the Supreme Court did its thing with ObamaCare. But if a Republican wins the White House, don't think ObamaCare won't be challenged, which will create more uncertainty for corporate America. If a Democrat wins, the status quo will prove costly. ObamaCare's "employer mandate" is a requirement that all businesses with 50 or more full-time equivalent employees provide health insurance to at least 95% of their full-time employees and dependents up to age 26, or pay a fee. It kicks in next year. The fee: a flat $2,000 per full-time employee, excluding first 30 employees. From talking to many companies, skyrocketing health care costs are zapping the bottom line. Execs don't see an end in sight to the increases, which are preventing them from sounding too bullish among investors on guidance and is impacting long-term earnings power. As of March 2015, the net cost of ObamaCare was projected at $1.207 trillion over the 2016-2025 period.
Honorable mention: The outlook for minimum wages.