Resources/Weekly Insights

Volume 13, Edition 27 | October 26 - November 1, 2024

Prepared for No Surprise

Doug Walters, CFA

With the election polls in a virtual tie, no one should be surprised at the eventual result. But there will be emotion and disappointment for half the electorate, which should not seep into your investments.

Contributed by Doug Walters, David Lemire, Max Berkovich

Next week brings an end to the wait. We can all cast our vote and play our part in democracy. Investors have struggled with this one, perhaps more than usual. We’ve done our best to calm nerves, pointing out that markets are typically driven less by which administration is in power, and more by economic cycles and the powers of free markets and capitalism. Yet, we still hear of investors sitting on the sidelines, and investors “waiting to see what happens.” We’ll make one last plea.

A colleague of mine put it well… regardless of the winner, no one should be surprised, but a lot of people will be disappointed. The polls are showing a virtual tie. So, by definition, it should not be surprising that either candidate wins. And also, by virtue of that tie, roughly 50% of you will be disappointed by the result. My advice is that you let neither your glee nor your gloom guide your investing behavior. We certainly won’t.

It is possible that the markets are ready for the result that comes. It is also possible that we will see something the market did not expect leading to market swings. Long-term evidence-based investors like us will be watching closely for these moves to take advantage of them. That is what our process is built for. Within a diversified portfolio, we will monitor asset moves and seek moments to opportunistically sell high and buy low. We’re not doing this because of the election, we do this every week. It’s what we do!

Long-term wealth is built, first and foremost, by not making mistakes. One of the biggest mistakes investors make is believing that somehow they can predict the future; not just what is going to happen in the world, but how the market is going to react to it. Staying out of the prediction game is a great first step to wealth creation.

48%

Average portion of the vote that each candidate has in Pennsylvania polls

The election could come down to Pennsylvania. The final FiveThirtyEight compilation of polls showed Harris and Trump tied at 48% each. Given how close the election is, no one should be surprised at the result. It’s a dead heat. Pennsylvania does not start counting mail in votes until election day, so it is probable we will not know the ultimate result for days.

Headline of the Week

Jobs and GDP

The Monthly Jobs Report tends to dominate each month especially when a Fed meeting is right around the corner. This month’s report missed expectations but the impact of two hurricanes and the Boeing strike made for a murkier report. The low headline number fueled speculation that Fed rate cuts are back on the table for next week (emphasis on speculation).

Arguably more important was this week’s GDP report that showed the US continues to post above trend growth. Relative to most other countries, the US continues to separate itself. The Wall Street Journal’s Capital Account column had some interesting tidbits. Stripping out the implications for next Tuesday’s main event, the story focused on the impact of productivity as a source of higher quality growth. The article highlighted the US performance differential to Europe and even China calling the unique “…intrinsic dynamism of American capitalism…” So, despite the psychological impact of still high prices and the angst of the pending election, the underlying economy seems to be chugging along.

The Week Ahead

Another boring week in the markets is in store next week. Just kidding of course! Presidential Election and Federal Reserve meeting will dominate headlines.

A Certain Uncertainty

The winner of the Presidential election may not be declared by Wednesday morning, but we caution readers that the outcome of several Senate and U.S. House races are more important to the direction of the markets in the long run.

With polling data having the presidential race as close to a coin flip, a surprising victory by either candidate should be off the table.
As discussed, there will be disappointment for half the people, but there should not be a surprise when the winner is eventually declared.
Seven swing states will determine the outcome, and there will likely be re-counts because the races will be so tight, and from past experience, those take some time to complete.

No Take Backs

Thursday, when the Federal Reserve announces its rate decision, a back-to-back half a percent move is off the table. Passing on a cut altogether may even be discussed.

Since the mega cut last time, economic data has been resilient, several Fed watchers are hinting the central bank may have overdone it and hence may want to get a mulligan and skip a highly anticipated hike this time.
As always, Chairman Powell’s tone will be important, and he will be cognizant of the uncertainty from the elections and not add to the anxiety by adding more variables to the equation.

Banking On It!

The meeting of the Bank of England (BOE) will be overshadowed, but it is important to keep an eye on.

The BOE passed on cutting rates last time but will have to make a move this time as headline Consumer Price Index inflation fell to 1.7% year over year for September.
The budget announced this past week created tremendous unease for UK’s bond market, so a rate cut from the BOE may help quell that as well.
The current probability stands at 80% chance of a 0.25% rate cut next week.
Market based expectations currently indicate the BOE does not cut again until March.

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