In the wake of the recent elections, the prevailing narrative suggests that the economy is moving towards a “no-landing” scenario—an idea that has gained traction over recent months among analysts. This term encapsulates the belief that, unlike traditional economic theories suggesting either a contraction (hard landing) or stagnation (soft landing), the current state of the U.S. economy is being sustained by excessive government spending and inflationary pressures. As the Congressional Budget Office forecasts an additional deficit of nearly $2 trillion this year, this spending is set to keep the economy buoyed. The mainstream media has begun to embrace this perspective, highlighting the ongoing economic activity despite concerns over inflation, which indicates that this “no-landing” situation is a likely reality regardless of electoral outcomes.
A significant aspect of this economic dynamics involves the behavior of the bond market, where recent turmoil—spurred by rising Treasury yields—has captured significant attention. The “bond vigilantes,” or market participants who react sharply to inflation threats, have been signaling their concerns by driving the yields of 10-year Treasuries—an important economic indicator—up from 3.6% to 4.3%. This increase suggests that inflation is re-emerging as a critical concern, despite attempts by Federal Reserve Chair Jay Powell to ease monetary policy through interest rate cuts. The ongoing deficit and rising interest rates imply a tug-of-war between a growth environment and the potential for inflation to erode consumer power, suggesting a measured growth scenario where economic conditions may remain volatile but sturdy.
Meanwhile, the landscape for oil refiners appears promising in this “growth-with-inflation” environment, positioning them well for continued economic expansion. As demand for gasoline, diesel, and other petrochemicals remains robust, oil refiners could see considerable benefits from the dual force of increasing consumption and lower crude oil prices, spurred by government efforts to boost domestic oil production. Key growth markets, such as the demand for asphalt driven by infrastructure spending, further underscore the potential for refiners to thrive in this economic context. Specific projections indicate that asphalt demand could grow by 5.1% annually in the coming years, underlining the optimistic outlook for these firms.
Two specific refiners stand out for investment consideration: Phillips 66 (PSX) and Marathon Petroleum Corp. (MPC). Phillips 66 not only has a record of significant dividend growth—hiking payouts by 130% over the past decade—but also exhibits a surprising resilience in its stock price performance. Although PSX remains flat this year, it has been actively repurchasing shares, which decreases the number of outstanding shares and enhances future earnings per share, creating a favorable scenario for potential price appreciation as dividends catch up. The firm’s current yield is also an attractive factor, currently sitting at around 3.5%, presenting an enticing opportunity for income-focused investors.
Contrastingly, while Marathon Petroleum has shown robust growth with a staggering 264% increase in dividends over the past decade, it has a lower yield, currently around 2.3%. Despite its strong growth trajectory, investors often overlook MPC due to its comparatively modest yield. Nevertheless, the low payout relative to the company’s free cash flow situation supports the argument for continued dividend increases, positioning it favorably for future stock price appreciation. However, given that MPC’s share price has already made gains this year—up about 9%—the potential for significant short-term growth may be less pronounced compared to PSX.
Overall, these refiners are emblematic of the broader economic dynamics at play post-election, where a combination of robust demand, steady production growth, and strategic capital management interact in an increasingly inflationary environment. Investors looking for opportunities amid these conditions may find both Phillips 66 and Marathon Petroleum to deliver appealing benefits, particularly in light of their dividend growth potential and the fortified demand for their products. With structural market factors favoring these firms, they represent compelling investment choices that capitalize on the evolving narrative of sustained economic growth amidst rising prices.
