Election Day is nearly upon us, and the stock market seemingly couldn’t care less. Trump and Harris find themselves in a statistical dead heat and the stock market continues to press to new highs. If the stock market had significant concerns about one candidate or another, then a toss-up election would almost certainly have the market more on edge, which should be reflected in lower stock prices.
Likewise, we haven’t seen any shift in the markets as election poll numbers have changed. At one point Trump held an enormous lead over Biden and the market went up. Then Harris took a sizable lead over Trump and the market went up. Now the race is back within the margin of error and the market keeps going up. Even September, the only month with a negative average return, proved fruitful for stocks, with its first positive performance since 2019.
At the moment, the market seems much more focused on the economy and Federal Reserve interest rate policy. In September the Fed cut interest rates for the first time in four years. While the rate cut was a widely-anticipated first step in unwinding some of the substantial rate increases from the previous two years, the size – 0.5% as opposed to a more typical 0.25% - surprised many economists and strategists, who question why the more dramatic cut was warranted given the strength of the economy. The answer seems to be a Fed that doesn’t want to be behind the curve again, as they were when inflationary pressures first hit in 2022.
Inflation is very close to the Fed’s 2% target, and with labor markets weakening, savings rates declining, and debt delinquencies rising, the Fed is quite clearly shifting their focus to the strained consumer. At their last meeting, the Fed projected another half a point in rate cuts this year and a full percentage point next year, with the pace expected to be more moderate. While lower interest rates won’t necessarily help someone buried in high-interest credit card debt, they should make other debt, such as mortgages and automobile loans, more affordable.
Many strategists, including those at Raymond James, predict that the stock market will remain resilient going into 2025. Dr. David Kelly at JP Morgan expects this to be especially be true if we see a continuation of the current “2024” economy; that is 2% GDP growth, zero recessions, 2% inflation, and 4% unemployment. Raymond James’ Chief Investment Officer, Larry Adam, compares the present economic environment to “San Diego’s near-perfect weather conditions (not too hot, not too cold)”.
Of course we can’t expect such a Goldilocks scenario to last forever. Those pesky recession indicators are still lurking in the shadows like a Halloween specter, with everyone trying their best to ignore them. Perhaps we should find it reassuring then, as the market apparently does, that the Federal Reserve is concerned enough about the slowing economy to enact a larger rate cut.
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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