"It's The Economy, Stupid!"
The last two months have been a roller coaster, to put it mildly.
- 6/27 = Biden/Trump Presidential debate
- 6/30 = S&P 500 ends 1H24 up just shy of 15%.
- 7/13 = Assassination attempt of former President Trump
- 7/19 = Crowdstrike cybersecurity crash
- 7/21 = Biden pulls out of the Presidential race
- 7/24 = Kamala Harris becomes the Democratic nominee
- 7/26 = Paris Olympics begin
- 8/4 = S&P 500 drops over 6% since the beginning of July
- 8/11 = Paris Olympics end
- 8/21 = S&P 500 recovers, gaining about 8% from the 8/4 low, now up just under 17% YTD.
- 8/23 = Federal Chairman Jerome Powell indicates that rate cuts are on the way.
Economy & Markets
Through 6/30/24, the Russell 1000 index, which covers large-cap stocks, was up 14.24%. Since then, after rising a little further, it dropped approximately 8%, and then recovered to be up about 18.33% as of 8/23/24.. The Federal Reserve's focus has shifted from the fight against inflation to supporting the labor market as recent data points toward a slowdown. In fact, the Bureau of Labor Statistics recently revised employment downward by 818,000 as of March, possibly meaning that the economy may not be as strong as figures have appeared in recent months.
In August 2022 at Jackson Hole, Fed Chairman Powell famously said "While higher interest rates, slower growth and softer labor market conditions will slow down inflation, they will also bring some pain to businesses and households." Two years later, at the most recent Federal Reserve retreat, he stated "The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balancing of risks. We will do everything we can to support a strong labor market as we make further progress toward price stability. ...there is good reason to think that the economy will get back to 2 percent inflation while maintaining a strong labor market." In other words - THE SOFT LANDING.
It's also clear that there is a market rotation away from the large growth stocks that have brought the market along to new highs. However, overall valuations are still quite high, and there may be a desire for opportunities with more reasonable valuations, or with reduced risk, especially as interest rate cuts may be ahead.
Political Noise through Year End
Joe Biden's decision to drop out of this year's Presidential Election sent a shock wave throughout the United States. Recent polls, even with the revised matchup, show that the election will likely be quite close. Polls by ABC News/FiveThirtyEight.com show the Biden/Trump pairing to be in Trump's favor 43.5% vs 40.2% as of July 21st. However, as of August 25th, the ticket of Vice President Kamala Harris & Gov. Tim Walz now leads the former President Donald Trump/Senator J.D. Vance ticket by more than 3% (47.2% vs 43.7%).
The political discourse is likely to be loud through the year end. However, the saying "It's the economy, stupid!" will likely dominate the conversation as November 5th approaches. Candidates' fiscal plans will certainly be scrutinized by both individual voters and the business community, especially with the background of a slowing economic backdrop.