Election news was front-and-center in July, with the attempted assassination of President Trump, President Joe Biden ending his bid for re-election, and the endorsement of Vice President Kamala Harris as the Democratic Party’s candidate. In spite of this, our economic outlook remains unchanged. According to Raymond James Chief Investment Officer Larry Adam, “Politics is only one of ten factors in our equity outlook framework and in fact, it ranks pretty far down the list. Macro factors and fundamentals are much more important in determining the market’s direction.”
While we await specific details about a potential President Harris economic agenda, most analysts, including those at Raymond James, expect it to be very similar to the current administration. That being the case, whichever party wins November’s Presidential election, we expect current government spending to continue mostly unabated and for the national debt to continue rising. A reckoning may be coming on that front someday, but it’s likely a ways off yet.
As far as economic fundamentals, inflation seems to be moving in the right direction, but interest rate estimates are all over the place. The Federal Reserve itself recently updated its rate forecast for 2024 to include just a single 0.25% rate cut this year. Wall Street doesn’t seem to believe it though, and futures markets are pricing at least two rate cuts in 2024. Some strategist are sticking with the Fed’s original estimate of three rate cuts, arguing that rising unemployment and loan delinquencies will force their hand. Others, like Vanguard, are forecasting no rate cuts in 2024, speculating that inflation will remain stubbornly above the Fed’s target.
Whatever the case, the stock market was pretty optimistic about things through mid-July, with most indices generating a steady string of 52-week highs this year and only a few analysts still calling for a recession. Of course, recession risks remain, with several indicators still flashing warning signs, even if those warnings feel stale at this point.
More recently, the market has pulled back a bit. While such pullbacks are not uncommon – a typical year would include several – it remains to be seen how severe this downturn will be. In a normal election year, the market is often soft leading up to the election, and then regains its footing once that uncertainty is resolved. Please, let the rest of the year just be normal.
The information above represents the opinion of financial advisor Travis Rus, and is not necessarily that of Raymond James. It is not a complete summary of all available data necessary for making an investment decision and does not constitute a recommendation, nor is it a complete description of the securities, markets, or developments referred to herein. Opinions are subject to change without notice. Information has been obtained from sources considered reliable, but we cannot guarantee that it is accurate or complete. Investing involves risk and you may incur a profit or a loss. Past performance does not guarantee future results.
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