Market Commentary
For the week ending 11/8/2024
There are, of course, many diverse factors that influence any person’s vote for Federal office; social, ideological, economic, and institutional – not to mention the personal and emotional elements (our hopes and fears) that weigh on such a decision. Our concern here is strictly economic, and how the “Red Wave” that swept over the U.S. on November 5th might affect the economy generally, and the stock and bond market specifically, going forward.
Based on Wall Street’s reaction to the results, we can surmise that the consensus opinion is that it will have a positive effect. The three major stock indices, as a group, rose about five percent for the week and each hit a new record high on the expectation that looser regulations and lower corporate taxes would result in better earnings growth for companies and better economic conditions for American workers. The bond market reacted by pricing in higher growth and inflation with a rise in market-based interest rates.
The rosy expectations are constrained somewhat by two policy proposals that the president-elect made central to his campaign. Those are his plans to drastically restrict immigration and to deport as many people currently residing in the U.S. without legal status as practically feasible. The second is his promise to substantially increase tariffs on imports. Both of these are seen as highly disruptive and inflationary. Many economists, however, have been quick to point out that how, and how quickly, these measures are implemented is still uncertain and, as always, “the devil is in the details.” Lacking those details, we simply don’t know what the final effect will be.
While surveying the possible effects of the proposed policies, it remains our opinion that macroeconomic forces, all originating in the private sector, will have a greater impact on our economic fortunes than anything emanating from Washinton. For one, the widespread adoption of digital interfaces into every facet of our lives has changed the economic landscape and thus what it is even possible for Washington to do. Take, for instance, what we call the “Gig Economy”. The Bureau of Labor Statistics estimates that 34%, or 57 million people, make at least part of their monthly income from participating in the gig economy. The gig economy is comprised of freelancers, independent contractors, project-based workers, temporary and part-time hires. Looking at just one example, ride-sharing (think Uber and Lyft) is projected to collect nearly $54 billion in revenue this year. No presidential administration created the ride-share service or any of the digital technologies that made it possible, yet having 57 million workers pay their taxes using a 1099, rather than a W-2 form has enormous consequences for fiscal and regulatory policy, to name just two. The innovations that make it possible for a company like Amazon to deliver the collective output of the entire globe to every single citizen in the U.S. literally overnight, have lifted our Gross Domestic Product immeasurably and completely changed how the U.S. government collects and utilizes economic data.
Zooming out a little, another factor that has affected our economy is the phenomenal rise in life expectancy in the last 100 years. This one demographic fact alone has changed our economic framework, potential, and expectations to a degree that would be nearly impossible to define in full. It was the private sector that invented the medical and sanitary conditions that made this possible. No doubt, government money and government mandates brought these health benefits to citizens on a mass scale, but, absent the innovations in the private sector there would have been nothing for the government to do. Government does not create wealth. It distributes it on behalf of the citizens.
Nevertheless, we can expect the incoming administration, should the expected burst of investment and profits materialize as expected, to take credit for all the good times to come. This is only natural, and one of the unearned benefits of winning an election. “Unearned” because, if things don’t pan out, the president will get the blame, even though – like the pandemic and its aftermath – he will most likely have been dragged along by events entirely out of his control, just like the rest of us.
The election overshadowed much of the rest of the week’s economic and policy developments. Following its scheduled policy meeting, the Federal Reserve announced a 0.25% cut in the Federal Funds Rate. Asked about the Fed’s response to the expected policy proposals of the next administration, Powell was resolute in stating that any changes would be evaluated as they were announced and that, “We don’t guess, we don’t speculate, and we don’t assume.” When questioned, Powell also stated that he would not resign if asked to do so by the president.
In terms of economic data, the week’s biggest surprise arguably came in Tuesday’s release of the Institute for Supply Management’s gauge of October services sector activity, which came in at 56.0, well above expectations and the best reading since August 2022. Encouragingly, price pressures eased somewhat even as activity picked up, reversing a string of three monthly gains. According to the Institute’s chief researcher, surveyed companies reported only a minimal impact from recent severe weather, which had a larger impact on manufacturing firms.
For the week, the Dow Jones rose 1,937 points to 43,989 (4.6%), the NASDAQ was up 1,047 points to 19,287 (5.7%), and the S&P 500 added 267 points to 5,996 (4.7%)
Oil gained $1.00 to $70.50/bbl. Gold fell $57 to $2,692/oz.
And the yield on the 10 yr. Treasury was steady at 4.3%.
The opinions in this commentary are the writer’s and may occasionally vary somewhat from the opinions of the Winch Financial investment team as a whole. Client recognizes that any opinions or analysis described in this commentary involve the Advisor’s judgment and good faith and do not constitute investment advice. All recommendations or observations are subject to various market, currency, economic, political and business risks. Client recognizes that no party to this alert has made any guarantee, either oral or written, that Client’s investment objectives will be achieved. Advisor shall not be liable for any action performed or omitted to be performed or for any errors of judgment or mistake, except in the case of Advisor’s gross negligence, willful misconduct, or violation of applicable law. Advisor shall not be responsible for any loss incurred by reason of any act or omission of Client, custodians, broker-dealers, or any other third party. Nothing in this commentary shall constitute a waiver or limitation of any rights that Client may have under applicable state or federal law, including without limitation the state and federal securities laws.