How the US Presidential Election Is Affecting Investors

Joe Agostinelli: Hello and welcome to Morningstar’s Investor Impact webinar, where we will discuss how the US presidential election is affecting investors. My name is Joe Agostinelli, and I am the senior director of market research here at Morningstar. I’m joined by several of our experts: Dave Sekera, senior US market strategist in the equity analysis area; Erin Lash, consumer sector director, equity research; and Preston Caldwell, senior US economist, fixed-income and currency Research.

Thanks to all of you for taking some time today. I’m looking forward to the conversation.

So, a brief introduction to some of what we will be covering today. Here at Morningstar, we run our Voice of the Market Research program annually. This includes both trending questions and new topical questions in our primary surveys around both the retail investor and advisor audiences. These programs also include some deep dive surveys throughout the year, where we see fit. An example of this would be the election coverage that we had throughout this year. And also a survey that we have in field right now with advisors around models and alternatives as a couple of examples.

In the 2024 program, we asked these questions specifically around the US presidential election and the impact of this political milestone. We looked to measure impact on several different measures. General concerns about market volatility leading up to the election, adjustments to investment strategy in anticipation of the election, and then whether investment strategy is changing to more short-term, long-term, or remaining the same. Both retail investors’ and advisors’ responses to these specific questions were collected via online surveys in the US. Within these surveys, we maintained a consistent respondent profile structure and waiting across time periods to ensure comparability. We went in field at several key times throughout 2024, so to briefly outline those time periods.

The first one was pre-Donald Trump assassination attempt. This was our main survey launch anyway. So, we had retail investors covered in the middle of March, and then we had our advisor survey in the beginning of July. Then we covered both audiences post-Trump assassination attempt, but before the Biden/Harris announcement, which was in mid-July. Then we did another read after the Biden/Harris announcement in mid- to late July. And then one last read with only retail investors post the Harris/Trump debate, which was in mid-September. And across all these time periods, we came away with three key takeaways.

Number one, the individual investors were generally much more concerned than financial advisors about market volatility leading up to the election. Probably not a huge surprise to anyone. But the level of concern for both was generally stable across all the points in time that we measured.

The second key finding, as a baseline, about half of retail investors plan to make some sort of adjustment to their investment strategy in anticipation of the election. However, that number jumped to 71% directly after the announcement that Joe Biden would not run for reelection, and he would be supporting Kamala Harris as the nominee. So, we’re going to talk more about what that means and the implications.

And then third, the same point in time, the Harris announcement also generated a shift in terms of strategy timeline with more retail investors, 37% versus around a quarter in other periods stating they would change their focus to a more short-term strategy.

So, we’re going to get into our first of three sections that we’ll cover today, the economic and market outlook. First, I’m going to dive into a slide that gets into our first key insight that I shared a minute ago. And then we’ll hear from Dave and Preston.

As I mentioned, individual investors were generally much more concerned than financial advisors about market volatility leading up to the election. Right around that 50% mark, you see on the left here in terms of the top two box on the concern scale. Advisors in the middle, much less concerned, also without significant differences between time periods. You see on the slide: 29%, 25%, and 36% across the three periods we measured with advisors.

And then on the right, advisors also recognize that their clients do have a higher level of concern, whether they’re basing this on the conversations that they’re having with their clients or just the general sentiment around how they may react during these time frames, roughly 60% across those three there.

Moving into another slide from our Voice of the Investor study, we introduced the Investor Engagement Index this year, which is based on seven different components, which you see on the right side of the slide. We found that investors who work with financial advisors show higher engagement across several of these areas than those who don’t work with financial advisors. That’s what you see on the bar chart there: 70 is the index score for those who work with an advisor, 63 for those who do not.

Notably, there was a significant difference in four of these components, which is highlighted in bold on the right. Those four components are driving the overall index score difference between the two groups.

Two of those components are particularly relevant to the concerns we observed on the previous slide. So, number one, a strong sense of being well informed about their investment composition and performance. And then number two, a clear understanding and alignment between their investment strategy and long-term goals. So, advisors being proactive and reaffirming those two pieces with clients could go a long way in reducing concerns about the market. And as mentioned, concern was flat across all of the time periods where we measured concern. We’ll see on a later slide in our discussion a question we asked where that steadiness across time periods is not the case, but we’re going to continue to focus here for the moment. And I want to bring Dave in and ask him a question from his perspective.

One additional note for the audience, Dave and Preston recently had a deeper conversation in the Morningstar Q4 US Market Outlook webinar. There is going to be a link to that recording available in the attachments, which I would encourage everyone to check out.

Dave, given your role at Morningstar as US market strategist, how can investors focus on their investments and long-term goals in this period that is generally accompanied by heightened concern? Are there specific asset classes or strategies from Morningstar’s perspective that look more attractive during this time?

Dave Sekera: Hi, Joe. One of the hardest aspects of investing is always how to learn to discern between what’s signal and what’s noise. And right now, in my opinion, I think the election is actually providing a lot more noise than signal.

So, as always, our focus here at Morningstar is on valuations, looking at our long-term intrinsic valuation on individual stocks, and then rolling those up into a broad market valuation level. And what those valuations are telling us right now is that the market is already fully valued. In fact, it’s starting to get to be a little bit ahead of itself at this point. I think when I look at the market and our valuations, I think the race has been run for this rally, and I think there’s probably pretty limited short-term upside from here.

So, right now, the market is trading at about a 6% premium to that composite of our fair valuations. And in this chart, if you look back, since 2010, rarely has this market traded at this much of a premium or more.

In fact, the last time we saw this amount of a premium was the beginning of 2022. At that point, we actually were recommending to investors to be underweight the equity market. The reason being is we were looking for inflation to increase, interest rates to increase, the economy to soften, and the Fed to start tightening monetary policy.

But today, we’re in a very much different world. The market dynamics are almost the exact opposite than what we saw at the beginning of 2022. As Preston will go into in his discussion, we think inflation is going to continue to keep moderating. We’re looking for interest rates, long-term interest rates to start coming down over the next couple of years. And we’re looking for the Fed to continue easing monetary policy. Really the only headwind to the market right now is that slowing rate of economic growth that we’re expecting. So, at this point, I think there are still enough tailwinds behind us that those are overwhelming the headwind. So, I would still continue to market-weight equities at this point in time.

Now, with the broad market at a premium, I think positioning is becoming even more important than it is historically. And when I look at the different parts of the Morningstar Style Box here, you can see that the small-cap stocks are still pretty significantly undervalued, trading at about a 9% discount to fair value. And then when we look at the market by style, value to us is still the most attractive part of the market, trading at a slight percent discount; whereas core stocks are trading at a little bit of a premium, and growth stocks are now trading at a 24% premium over our fair values. And in fact, again, going back through 2010, rarely have growth stocks ever traded at that much of a premium over fair value. So, I do think that now is probably a good time to look to the sector and the growth area and look at underweighting growth, look for those stocks that have run too far too fast, and look to take some profits in that area.

And then I think you also need to take a new look again at your allocations between fixed income and equities. With as much as the equity market has run this year, maybe your allocation has gotten a little bit ahead of itself, maybe too high of a percentage in equities. So, again, it might be a good time to just lock in some profits before the end of the year.

And then similarly with fixed income, I think with bonds having backed off since the Fed started easing monetary policy with the 10-year Treasury in that 4.3%, 4.4% range, and our view that we would expect long-term rates to start coming down over time. I think fixed income is actually starting to look a lot more attractive to us. At this point in time, the only thing that I would caution investors is probably to shy away from corporate bonds. I think corporate bonds are trading at very tight credit spreads. So, I would look to underweight corporates but keep my expectation for overall fixed income looking pretty good.

And then lastly, by sector, a lot of the sectors are also overvalued. A lot of those have really gotten out of whack. So, it’s probably a good time to readjust your sector allocations as well. Some of the sectors that we still find attractive are going to be the communications sector, the energy sector, and the real estate. Real estate being sensitive to interest rates. So, that took a little bit of a back-off as well. So, providing investors a good time to look at some of those REIT stock allocations.

Agostinelli: Great. Thanks, Dave. So, overall, we’re close to fair value as a broad market, a little bit ahead of ourselves, as you said, with some areas of potential opportunity. And Preston, as our resident expert economist, going back to the voice of finding around volatility concerns, how do you see these concerns playing into the broader macro picture that we currently sit in?

Preston Caldwell: Normally, I really emphasize to most people that I think in the popular media, there’s an overemphasis on the outcome of elections. This is a driver of developments in the macroeconomy. And that’s first just because I think policy moves in a much more gradual way than people appreciate.

Even if you have unified control over a government, it’s no guarantee that you can push through a defined agenda. So, just to throw out an example, if you go back to 2017, I think everybody assumed that after rallying against it for the better part of a decade, the Republicans were going to repeal the Affordable Care Act, aka Obamacare, but they can never come together on an alternative that they could pass. So, that never happened. I think likewise this time with the Republicans having a pretty narrow control over the House, it’s going to be difficult to push through large-scale policy changes on a lot of issues. There will be some exceptions, of course.

Now, I think trade policy is a very interesting exception because it’s one of the few major issues where the president can have the authority to enact sweeping changes without legislative approval. I’ll also say it’s also distinguished in being a rare issue where the experts, the economists are pretty much unanimous that high tariff rates are bad for the economy. And so that’s really where I focus my analysis leading up to this election. And so, if you look at the chart that I’m sharing here on Slide 7, we’re projecting a combined 1.9% impact from both of these two major trade tariff proposals that have been promulgated, the 10% uniform hike and also a 60% tariff rate on China alone.

The 60% rate on China is a little bit smaller in impact mainly because there’s a high likelihood that goods can be rerouted through third-party countries, which is exactly what we saw during the 2018-19 trade war and the aftermath with lots of erstwhile Chinese goods seemingly getting rerouted to third countries like Vietnam. So, this is quite a large impact if it plays out.

Now, what we showed in the middle column was our conditional probability of these tariffs being enacted if Trump wins the election. And we assess that as being pretty low for the uniform tariff hike, which has the largest impact. And so, as a result of that, the probability-weighted impact is fairly low. On the rightmost column there that probability-weighted impact was assuming a 50% probability of the Trump victory. So, now that he’s won, we can roughly double that probability-weighted impact compared to what you see on the table there just published before the election. But still, it’s significant but not a huge driver for the macroeconomy, assuming that the probability of this pushed through remains low. And so, the reason why I do think it’s a fairly low probability is that if we go back to the 2016 campaign, even then there is a lot of talk about this uniform tariff hike, but there’s really no serious attempt to push that through during the first administration. I think there are many voices still in Trump’s inner circle that would weigh against the uniform tariff hike.

So, it’s a possibility, but I would say more likely I think it’s just bluster designed as a tough negotiating stance in order to extract concessions.

The China tariff hike is obviously much more likely, but even there I would say this extreme 60% rate on China has a strong likelihood of being deterred not only by the consequences on US consumers but also the likelihood of retaliation from China. Especially at this point with tariff rates getting so high, China may conclude that it has little else to lose by taking more extreme measures. And this could include retaliating on US companies that operate in China.

So, all in all, I think it’s a little less than a coin flip likelihood that the 60% rate on China also comes through.

I focus here on the impact on real GDP, which really is the variable which would be unambiguously impacted by these higher tariff rates. Now, whether this also impacts inflation as well as interest rates depends on how the Fed responds to this, how proactive and how sensitive the Fed’s reaction function is to these tariffs. So, my assumption right now is that the Fed would be fairly proactive. And so, if this scenario were to play out, it would cause higher interest rates, but at the same time that would keep inflation from being heavily upwardly impacted by these higher tariff rates because of that Fed offset.

So, moving to the next slide, of course, there is also the question of impact on the fiscal situation. Now, our baseline expectation is that we expect the combined US government deficit as a shared GDP to average 8.2% over the next two years and then drop to 7.4% over 2027-28, largely driven by lower interest costs.

That’s really only moderately above the prepandemic average of 6.4%, but it’s still quite high for a peacetime economy that’s operating at full potential. So, I do think that the high deficit level and high debt load that’s existing will constrain Congress. There are still many Republicans in Congress, maybe not the majority anymore but still many who are deficit hawks even when it comes to passing legislation from their own party. And right now, the negotiation on to what extent they’re going to enact some of the tax cuts that were discussed in the last campaign is that negotiation is just starting. So, it’s too early to say what will transpire from all of that. There’s probably a wide range of outcomes still at this stage. We look back to 2017. That negotiating process leading up to the TCJA [Tax Cuts and Jobs Act] took the better part of the year. But right now, we’re expecting partial renewal of the 2017 TCJA, which is set to sunset in 2026. And so, if we did have full renewal, that would add 1.3% of GDP to the deficit compared to the CBO baseline. But we’re assuming that it adds about 1.0% rather than the full 1.3%. We think there will be some offsets there.

Immigration is another important issue. But interestingly, if we look at the legal immigration data that we have, there wasn’t a huge impact in the first Trump administration. Now, it’s very hard to obtain unambiguous and clear data on the illegal immigration side. The data that I have there also suggests that the impact was quite a bit smaller than you would expect. But there’s much more uncertainty there. But we can say quite unambiguously that there was not a huge hit to legal administration in the aggregate during the first Trump administration, looking at the data. So, I would expect that to be the baseline expectation going into the second administration. Now, obviously, there’s been talk about mass deportation, which again was something that was talked about in the 2016 campaign, but they really didn’t have the wherewithal to enact. Now, I do think there will be a more focused effort this time. But in order to get any kind of significant mass deportation, you really have to have new legislation. And so, I do think resources may be forthcoming via a reconciliation bill, which will skirt around the filibuster to step up immigration enforcement to some degree. But the idea that you’re going to deport millions of immigrants, many millions of a quantity which would constitute a large share of the workforce and therefore have a significant deleterious impact on the US economy. That seems very unlikely to me.

Just to sum it up, I think trade is really the main area of the impact to focus on right now. But hopefully, and it looks to me like the worst-case scenario won’t transpire there. So, I’ll kick it back over to you, Joe.

Agostinelli: Great. Thanks, Preston. Certainly, a lot of different factors to consider after the election. And good to have your perspective on the likelihood of some of these measures coming into play.

So, we’re going to dive deeper into the second key finding I shared at the top of this webinar. As a baseline, about half of investors plan to make some sort of adjustment to their investment strategy in anticipation of the election. So, what you see on the left side of the slide here you see 50%, 50% or 51%, 50%, and then we jump to 71%. That jump to 71% with retail investors happened directly after the announcement that Joe Biden would not run for reelection, and he would be supporting Kamala Harris as the nominee.

And when we saw this jump, we talked internally about what might be going on here. And the hypothesis we came up with was the Biden and Harris announcement probably produced out of all these different points in time that we measured, probably produced the biggest question marks or potential shifts in things that more directly impact thoughts on investments, things like potential monetary or regulatory policy changes under a new administration, more so than these large scale events that are not in that realm, the Trump assassination attempt, the debate between Trump and Harris that probably had some national impact on thoughts around the election but didn’t get into those potential administration upheavals. And Preston touched on his thoughts around some of those policies that could come into play.

Moving to the next slide, coming back to another voice of the advisor finding, we explored the ways in which advisors add value to the client relationship from both the client and the advisor perspective. So, both clients and advisors highlighted that the greatest value advisors bring to their relationship lies in managing investments with expertise, focusing on growth and risk management. This is a key touch point for advisors that they can revisit with clients, especially during times when clients may be considering changes. Advisors can remind their clients, “Hey, this is why you hired me. Let’s discuss whether anything significant has changed in your goals and how we’re working toward them. From there we can explore if any adjustments are needed to keep you on track.”

This can also help. This type of conversation can also bridge a gap we see on the slide. If you look at row four around tailoring financial plans, many more advisors, 49% of them, note that this is a way that they add value compared to clients who say that advisors add value in this way at just 29%. So, this can be an opportunity to remind them that their plan is focused to them based on factors like risk comfort and other individual factors and that you aren’t just providing a blanket strategy to them and others.

So, with that, bringing in Erin Lash. Erin, with your focus on consumer equity research, how do election results and potential policy changes tend to impact the consumer sector and what are the key trends that you’re monitoring?

Erin Lash: Thanks, Joe. I would say by and large, elections tend to have little to any impact, at least on a lasting perspective as it relates to consumer spending patterns. Now that said, while there is more certainty in terms of the election outcomes than maybe some had expected we would have at this point a week past the election, as Preston alluded to, there is still a significant amount of uncertainty in terms of the ultimate policy changes that will get enacted and the extent to which the degree to which those will be enacted.

So, there is still some uncertainty. And because of that uncertainty, there could be changes in terms of short-term spending patterns. Consumers could be reluctant in the near term to spend on big-ticket discretionary items. Think home furnishings, electronics, maybe some travel and leisure. But as we get further on from the election over the next several weeks and months, we expect that that hesitancy will alleviate and consumers will return to spending patterns that had been transpiring over the last several weeks, months, quarters. So, we don’t expect any major change.

But in terms of what we’re paying attention to and the key trends that we’re watching, I would say first and foremost, it’s around inflation. And while, as Preston alluded to, inflation has come down by and large across the board, there are still pockets of inflation. We’re still seeing inflation and hearing about inflation from the companies we cover as it relates to labor, as it relates to transportation and logistics. There are still pockets of raw materials that are still quite inflationary, particularly within my package-food universe. Cocoa and sugar costs remain incredibly elevated. And so those are headwinds that we’re watching in terms of how firms are navigating this landscape and the decisions that they’re making from a capital-allocation perspective. And that gets into the next trend.

If consumer spending were to weaken more materially, if consumers were to opt increasingly to trade down or out in a host of categories, we’re paying attention to the decisions from a capital-allocation perspective that firms are making. Will they opt to promote and discount, to chase short-term market share gains and secure those volumes in the short term? Or will they continue investing behind innovation, behind marketing, behind fixed asset investments and capabilities to make sure that they’re investing for the long-term health of the business? Obviously, short-term promotions tend to be dilutive from our perspective. They do little to enhance the value of the business, to support a firm’s competitive position. And they erode a firm’s profitability. Investing for the long term may not provide that near-term bump to volumes in market share but should support the business over a longer horizon and support that competitive positioning, those brand-intangible assets potentially that a firm is deriving their moat from, which I’m sure we’ll get into a bit further later on. But I would say that those are some of the key trends that we’ll be paying attention to, Joe.

Agostinelli: Great. Thanks, Erin. As you mentioned, a lot of unknowns. At the moment, a lot of speculation in terms of what’s going to happen but setting yourself up for long-term success and just making sure that you’re building that path forward is going to be a key driver for particularly the sector that you cover.

So, we are going to get into our poll question. Depending on the platform you are viewing this on, you may or may not see that pop up, so I’m going to read the question and read the responses or response options. So, the poll question. Now that the election results are in, are you increasing, decreasing, or maintaining current equity or portfolio allocations? So, the options would be: A, increasing; B, decreasing; or C, maintaining. So, we’ll give people a few minutes to respond to that. In the meantime, we’ll continue on, and we’ll come back to those results in a few minutes.

So, just a quick overall webinar status update. We’re about halfway through. I’ll cover a few more slides. We’re going to review those poll question results, and then we’ll hear a few more comments from both Dave and Erin ahead of the Q&A.

So, at this point in time, let me get to the correct slide here. There we go. So, at this point in time, the Biden/Harris announcement also generated a shift in terms of strategy timeline. So, with more retail investors, you see that 37% highlighted there versus around about a quarter in those other time frames stating that they would change their focus to more short-term. So, as you see, no change to long-term focus. Everything stayed pretty consistent across those time periods. So, again, that potential change in policy may have been a driving factor here.

A couple of other things to bring in here from our voice of the advisor research. When we asked advisors about their primary challenges or concerns when working with new clients, the most common responses to an open-ended question centered on client education, which you see in the left-hand chart there.

On the right-hand side of this slide, you see the specifics that make up each of those categories. So, there are a few bullets under educating, a few under trust, et cetera. While advisors recognize this being education is a challenge, integrating education into the onboarding process, especially with consideration for how large-scale events might shape client perspectives and decisions can greatly enhance those initial conversations.

I’m going to change slides even though it doesn’t look very different from a formatting standpoint. This is looking at the advisor/asset manager relationship and the primary reasons that advisors choose to work with the asset managers they do. So, you see service kind of coming in as the top recognition, top reason that advisors choose to work with asset managers with key aspects on the right underneath that service heading, like providing valuable information stands out as one of the top three areas. So, advisors view asset managers as this reliable source of content they can share with clients when appropriate.

For asset managers, offering resources on how to communicate effectively during significant market events could be a very meaningful value-add for advisors from those asset-manager partnerships that they have.

It looks like we have the poll results in. So again, the question was now that the election results are in, are you increasing, decreasing, or maintaining current equity allocation? And overwhelmingly, we saw no change: 71% no change, 17% increasing, and then 11% decreasing. So, pretty much staying the course from our audience perspective.

Dave, coming back to you, are there some common investor pitfalls during election years, and now that we are postelection, are there any areas that people may rush into or out of? And just tying this back to the advisor/client relationship, how can advisors help their clients navigate this most efficiently?

Sekera: Joe, I think this goes to what you were talking about earlier. I think today’s environment is similar to when we see a lot of other market catalysts where advisors can really add a lot of value to their clients by keeping them on track. All too often, investors become overly focused on short-term news. They let emotions lead them to making short-term decisions that don’t necessarily align with their long-term goals and risk tolerances. So, for example, younger investors should not be trying to time the market. After this rally, they probably should not be trying to get out of equities too much. I think there’s too much of a risk for those long-term investors. They’re potentially missing out on gains now that would compound themselves over the next 20 or 30 years. It kind of gets back to that old adage for long-term investors, time in the market is actually more important to your ultimate returns than trying to time the market.

And then conversely, there might be some fear of missing out. You might see retirees looking at the gains that we’ve seen over the past week. They may want to move some of the money out of fixed income into equities trying to ride that rally. But right now, with the market being pretty fully valued if not maybe starting to get to be overvalued, I think there are a lot of risks for people who probably should be more concerned about principal preservation than growth. So, you need to make sure that you’ve got that balanced approach to your portfolio based on what those goals are, whether they’re longer-term in nature or shorter-term and maybe more dividend-focused.

So, I think part of it is you really need to help your clients understand what are their objectives, help them understand what those risk tolerances are that they’re able to withstand. And then specifically, tail that into how is their portfolio structured to meet those requirements.

I think it also helps, too, to try and help those clients become much more mentally prepared for whenever the market does take its next downturn, whether that’s a 5%, 10%, or even 20% selloff. I think people need to understand that the markets aren’t always up and to the right. There are definitely going to be times when there’s some sort of catalyst that causes markets to sell off.

And to some degree, I do think the market is probably priced to perfection right now. According to Preston’s outlook, we are looking for a slowing rate of economic growth for the next couple of quarters. Could that potentially be something that causes earnings growth to slow? Maybe you could see some of those really highly priced and overvalued growth stocks sell off in such a case. And of course, because most of those stocks have such large market caps, they can skew those index returns, which may not necessarily be how those individual portfolios react in those kinds of environments.

So, just wrapping it up, I would just say that you really should help your clients make sure that they understand. The only time that they should really be making significant changes in their portfolio is either one when valuations become just way too skewed one way or the other, and there’s actually a good reason to overweight or underweight the market, or if there are changes in the fundamental outlook, but even then, only make those changes in your portfolio when the fundamentals really back up those changes. Don’t let emotions skew your long-term view and make sure that you’re relying only on impartial analysis.

Agostinelli: Awesome. Thank you, Dave. That long-term focus really is critical, especially through these times of uncertainty where there’s heightened desire to make the right choice.

So, Erin, a couple of questions for you. Number one, how do you see companies positioning themselves now, and what’s changed for them between 2016 and 2024? And then the second question, what role do you think consumer confidence will play in the coming months, and how can advisors position clients to take advantage of any potential shifts in consumer behavior?

Lash: Thanks, Joe. A lot embedded in there, so let me try to tackle those in turn. First and foremost, I would say a lot has happened since 2016, not only through the first Trump administration but obviously during the pandemic and coming out of the pandemic. Firms have been faced with a slew of challenges that they have had to navigate in pretty quick fashion. And so, as a result, we think that firms are utilizing data and analytics at present to a much greater extent to assess different scenarios and outcomes that could emerge postelection. Similar to what they were doing during covid, similar to what they were doing during the extended period of supply chain disruption, and then most recently in the inflationary cycle that we have just seen.

And so, we attribute and we would think that a lot of that data and analytics will help them be more agile in terms of responding to changes that emerge and regulatory enactments that happen while also providing them a deeper breadth of insights from which to draw from. And so, that’s really how we think that firms are working to position themselves to be more agile, to utilize the data and analytics that they have at hand.

But what’s different between 2016 and 2024 besides just what has transpired in the more macro and competitive landscape? For one, we think that firms have taken a number of strides to reposition their manufacturing network. Some of that was spearheaded following Trump’s first term in office in terms of moving manufacturing facilities closer to the end consumer, closer to where those goods would be sold and utilized. But that became even more critical during the supply chain disruptions that we saw coming out of covid.

We had a heightened period of demand. Grocery store shelves were left bare. Retailers even on the discretionary side were dealing with a significant imbalance between supply and demand, and it really heightened the need for companies across the supply chain to ensure that product was closer to the end consumer. And so, that’s one of the things that we think has transpired.

Manufacturing facilities have been moved, whether that’s out of China into other parts of Southeast Asia, Latin America, or even back to the US. And so, the extent to which that’s happened could have an impact as it relates to what manifests from any tariffs that are ultimately enacted during this current administration.

In terms of consumer confidence, that obviously has a significant impact as it relates to consumer spending, but there’s a lot more than an election that can really drive consumer confidence. What happens to the unemployment rate? How does that impact the level and the extent to which consumers are comfortable spending? What’s happening in the geopolitical landscape? Does that increase or decrease a consumer’s confidence and their willingness to spend? And then finally, what happens to the stock market? Even if there is a decline in the market and that’s merely just paper losses, that perception of wealth and that change in it can have an impact on the degree to which consumers are willing to spend. And so, all of those factors are likely to come into play on a longer-term horizon, in terms of how consumer confidence and consumer willingness to spend manifest going forward.

But similar to what Dave has echoed, we would suggest that none of what we’ve talked about today is likely to have a lasting impact on the cash-generating ability for a number of firms across industries, particularly those in which we view as competitively advantaged. And so, we would suggest that investors and advisors continue to focus their attention on names that have been able to derive a moat and that are trading at a discount to what we consider intrinsic valuation.

The first name I’ll highlight is Kraft Heinz KHC. We assign Kraft Heinz a narrow moat. And I think one of the things that initially weighed on shares several years ago was the extent to which the prior management regime was more focused on buoying short-term profits and cash flows at the expense of investing behind the long-term health of the business. That resulted in significant impairments, a reduction in their dividend, and ultimately a management change. Since mid-2019, we think the team has been more focused on investing behind consumer-valued innovation, lowering their leverage levels, and looking for cost efficiencies as a means by which to fuel research and development as well as marketing, and ultimately enhance their standing not only with consumers but ultimately with their retail partners. And as a result of that, we view Kraft Heinz’s shares as looking quite attractive, trading at about a 40% discount to our valuation. And we think the firm is poised to generate low-single-digit top-line growth while continuing to hold operating margins in that low-20% level, which is quite impressive for a packaged-food company.

Moving on, we would also highlight LKQ LKQ. LKQ also has a narrow moat, and for those who aren’t aware, it’s a leading distributor of aftermarket and recycled auto parts. We think its competitive advantage stems from its impressive scale and vast assortment in what is inherently a very fragmented market. The shares have been punished following steep declines and repairable claims. However, we think this will prove transitory. We see the demand for aftermarket and collision parts partially buoyed by increased vehicle miles traveled, an increase in parts and vehicle repairs, as well as an increase in alternative part utilization. As a result of all those factors, we think that the firm can return to low-single-digit top-line growth over an extended horizon while expanding their operating margins to the high single to low double digits. And with shares trading at a 25% discount, we think LKQ is another attractive alternative or option for investors looking for another place to put their money.

And finally, we would highlight Bath & Body Works BBWI. Bath & Body Works, similar to what you would anticipate, sells discretionary goods. And as consumers have pulled back spending in that regard, Bath & Body Works shares have suffered. The firm currently trades at about a 50% discount to our valuation, but we think it can resume generating sustained top-line growth while also getting operating margins back to that 20% level. It is a dominant player and holds a leading market share in the number of the different categories in which it plays across bath, shower, candles, body lotions, et cetera. And we think that their focus on investing in the omnichannel experience, driving productivity throughout their store as well as their e-commerce platforms, while also proving agile in terms of bringing consumer-valued innovation to market, should facilitate more robust financial results over an extended horizon.

So, those would be areas, Joe, that we would suggest investors consider as they’re looking at what to do in this postelection period.

Agostinelli: Thanks, Erin. Several compelling opportunities out there based on the excellent analysis that you and your team are bringing to the consumer sector. As you noted, agility and gaining some efficiencies, like those manufacturing networks that you mentioned, can set them up for success as they further leverage data and analytics in their day-to-day operations.