With heated political discord and rancorous rhetoric, it seems some investors are concerned over various political outcomes.  At all times, and especially during uncertain times as these, it is crucial to focus on the fundamentals.  With that as the goal, here are our latest thoughts on the economy, and markets.

• The Economy is Resilient. 

  Next week, the initial reading of Q3 GDP will likely have a three handle.  The Atlanta Fed’s GDPNow is currently suggesting a 3.4% growth rate.  Based upon the past, the GDPNow reading might be slightly higher than the actual number.  Nonetheless, it certainly does not suggest a near-term recession.

• Corporate Earnings are Strong.

  Based on Street consensus, earnings this calendar year are forecasted to grow by 9.4% this year, and by 15.1% in 2025, per FactSet.  This is impressive.

• Sooner or Later, the Results of the Election Will be Known.

  The markets hate uncertainty.  Eventually we will know the outcome of the election.  Regardless of the outcome, businesses can then focus on the known likely rules and regulations to plan a path forward.

• The Sweet Spot of the Year

  Normally November, December, and January are the three best performing consecutive months of the year, although there are exceptions to the rule.

• The Market is Trading a Bit Rich

  The stock market is currently trading above its historic average multiple to earnings. According to the latest FactSet report from 10/18/24, the S&P 500 was trading at 21.9 times anticipated forward 12-month earnings.  The 5-year average was 19.5, with the 10-year average being 18.1, per FactSet. However, multiples tend to increase in lower interest rate environments, partly because earnings are eventually inclined to increase further with lower cost of capital.

• Geopolitical Concerns

  There is almost always something on the geopolitical front to consider.  It just so happens, there currently seems to be numerous issues happening simultaneously.  History teaches the market is known to climb a wall of worry. 

• Political Concerns

  Candidates are speaking of potential policies which could possibly be negative for the economy should they actually come to fruition.  Political rhetoric or actual policies?  A significant red-wave, or blue-wave, might create greater change whereas a divided government might temper some of the potential ramifications. Even so, with numerous moving parts, it is often difficult knowing how any one policy factors into others.  There is no ceteris paribus in the real world.

• Short Term Interest Rates Will Likely Continue to Decline

  Fed Funds rates are likely to decline over the next year.  Declining interest rates normally benefit corporations due to lower cost of capital.  It seems as if lower rates are likely priced into the market.  Should this rate outlook change, some repricing might be warranted.

• Long-Term Investors and Market Volatility

  The average intra-year pullback for the S&P 500 is nearly 15%.  Market timing is difficult, at best.  Long-term investors who can ride through the volatility have been rewarded over time.  Therefore, if one’s investment time horizon is years - and not weeks or months, volatility is merely a blip on a chart.

• Cash Needs Over the Next 12 – 24 Months?

  For those wishing to raise cash for specific needs in the near term, say the next year, or two, perhaps harvesting gains at these levels is prudent. 

• Confirm Risk Tolerance

  For investors reassessing their risk tolerance levels, this too might be a time to harvest gains if one is finding increased volatility unappealing.

• Staying True to the Long-Term Plan

  Great caution is warranted when allowing one’s political ideology to influence one’s long-term investment plans.  Keep in mind, the market has set over forty-five record highs so far year-to-date – as recently as last week.  If there was wide-spread panic, the markets being forward looking would not be trading at the current levels.

• Questions, Comments, Concerns

  For a deeper discussion, we welcome the opportunity to converse further.