Beyond the elections, we see medium-term forces that will affect the economy and markets over the next several years. This paper looks at five trends:

• Fiscal policy: The U.S. political system will need to strike a balance between the need for medium-term adjustment and the economy's vulnerability to excessive tightening. Implication: Tight fiscal policy and the possibility of a rapid adjustment will continue to restrain growth and bond yields for a while; later, credit-rating downgrade worries may reappear
• The labor force: Other things equal, fewer workers entering the labor force mean slower growth. Implication: This factor will likely weigh against domestic corporate earnings growth in the medium term
• Energy: What do rising natural gas and oil production mean for “energy independence,” and will they create jobs? Implication: Rising gas output may help growth, but the U.S. will not be able to insulate itself from global gasoline price trends
• Manufacturing: The U.S. may be experiencing a revival in this long-slipping sector. Implication: A new, home-grown supply chain may serve as a fillip for small-cap equities
• Finance: Regulatory efforts imply a long-lasting "liquidity discount" in certain markets. Implication: Investors will continue to reap rewards if they are willing to lock up money