The second quarter ended with the Brexit shock, which initiated a two-day 800-point drop in the Dow Industrial Average on June 24. This was immediately followed by a 4-day, 800-point rise, effectively reversing all of the Brexit’s impact on the US stock market. The first two weeks of July produced a 3% rise in the Dow and the S&P 500. Then, from the middle of July to September 8, the stock market went through one of the calmest periods in over a decade. Volatility returned September 9 when Boston Federal Reserve President Eric Rosengren, a longtime supporter of lower rates, stated that the time to increase interest rates was nearing. His statements, coupled with the negative election rhetoric, ended the summer’s calm.

We have not detected any signs of optimism, let alone euphoria, suggesting that the bull market has yet to peak. The banter between two of the least liked presidential candidates in modern history has led investors to focus on the negatives. Interest rates are stuck in the basement, yet the Fed is saying that higher rates are coming, oil is dragging around $45 a barrel, stocks feel risky and volatile, and the election will likely be a circus. In the US, these factors are generating significant apprehension.

The rest of the world looks far worse. The world’s second largest economy, China, continues to retrench following a period of excessive overbuilding. This has caused commodity prices worldwide to fall for most of the last two years. Consequently, economic growth continues to languish in the developed world. In response, central bankers in Germany, Japan and Switzerland have pushed interest rates below 0% for maturities of up to 10 years. Who, you might ask, would buy a bond that implies a loss, albeit a small one? No rational investor would. Buyers of these bonds are either issuing governments or banks obliged by regulation. Hence, it is central banks and financial institutions that are driving rates into negative territory. The volume of bonds with negative rates has gone from zero in mid-2014, to nearly 30% today. Of the $40 trillion bonds outstanding, $11 trillion now yield rates that guarantee losses.

These central bankers are pushing on a string. If anemic growth is a product of low commodity demand in China, lowering rates in Japan and Europe will have no effect. The Chinese only borrow internally. Pushing rates ever lower in the developed world has not had the desired effect of stimulating their economies, so continuing this course of action is truly insane.

Meanwhile, in the US, job growth is excellent, earnings are mostly coming in on target, housing prices continue to rise, and personal income is rising, as evidenced by the Census Bureau’s recent report of a 5.2% gain for 2015. Still, investor sentiment reflects a glass half empty.

The upcoming election looms large. The parties are very far apart and unwilling to compromise. Historically, the best political result has been achieved when the two sides engage in give and take. The 1986 Tax Reform Act is a great example. We desperately need a repeat performance, but given the current divisive political environment, there is little chance of that. We think the worst election outcome would be a clean sweep of the presidency Senate and House by either party. But, if we can believe the polls, this looks exceedingly unlikely. Therefore, whether Hillary Clinton or Donald Trump is elected president, we believe the chance of extreme policy change is low.

One can lament that the status quo is likely to continue. There are big problems that need fixing, including the out-of-control costs of healthcare and education. Additionally, persistent low interest rates are making it nearly impossible for municipalities and states to earn the rate of return implicit in their pension and healthcare benefit plans. If we see many more years of this, we, the taxpayers, will be asked to bail out effectively bankrupt sponsoring municipalities. With our political parties moving ever further apart, there is little chance that solutions to these pervasive problems will be implemented in the foreseeable future.

You might think that lethargic world growth, divisive politics, and investor apprehension would cause us to be cautious and defensive. On the contrary, we see opportunity in our domestic stock markets. The bond market will continue to be challenged to produce a real return, providing, at best, a safe haven for funds earmarked for near-term expenditures. We concede that the fear of rising interest rates will cause the stock market to stumble occasionally, as seen on September 9. However, good economic indicators, muted sentiment, and few signs of froth suggest that the bull market has further to run.

Individual investment positions detailed in this post should not be construed as a recommendation to purchase or sell the security. Past performance is not necessarily a guide to future performance. There are risks involved in investing, including possible loss of principal. This information is provided for informational purposes only and does not constitute a recommendation for any investment strategy, security or product described herein. Employees and/or owners of Nelson Roberts Investment Advisors, LLC may have a position securities mentioned in this post. Please contact us for a complete list of portfolio holdings. For additional information please contact us at 650-322-4000.