- At the end of the 3rd quarter, The People’s Bank of China made several monetary policy changes to help to support the struggling financial system and economy in that country. At first, global investors cheered the news. During the 4th quarter, the true depth of the problems will become more apparent, and the cheering will stop.
- U.S. economic reports continue to come in slightly softer, especially the labor numbers. It won’t be awful, just weaker. As a result, the Fed will cut the overnight rate at both of the two FOMC meetings during the 4th quarter. Depending on the data, the rate will be either 4.25% or 4.50% at the end of December.
- The results for the White House, Senate and House of Representatives will all be close. Regardless of outcome, neither the Democrats nor the Republicans will have what could truly be considered a “mandate.” In this probable-case scenario, the end result of this election season will be political gridlock. Given how fractured our political system currently is, that is not a bad thing.
- With that said, due to the expiration of the so-called “Trump tax cuts” at the end of 2025, a lot of ultra-high net worth investors will breathe a sigh of relief should the Republicans make a clean sweep of it. The thought process is that the GOP will either extend the tax cuts or make them permanent. This would, could or should potentially save some families literally millions of dollars in estate taxes.
- Historically, the 4th quarter is a good one for stocks. There is little to suggest it won’t be in 2024. However, given the relatively rich valuations in domestic stocks, any stronger-than-normal rally to end this year will simply “steal” returns from the start of 2025.
- The Democrats have proposed some pretty dramatic increases to long-term capital gains tax rates. Should they sweep the elections, we might see the markets sell off before year-end, as investors and fund companies “lock-in” the capital gains they would ordinarily take in January. Again, this could save some investors a significant amount of money.
- Aaron Judge will win the MVP award for the American League in baseball. Shohei Ohtani will win it for the National League. Although some people will complain Ohtani is only a designated hitter, his finish to the regular season was classic and will sway voters.
- All other things being equal, slower economic growth counterbalanced by a massive supply of new debt issuance should keep long-term interest rates in a relatively stable range during the quarter. However, thanks to the Fed, short-term rates should continue to fall. This will cause the yield curve to flatten, which should benefit small-cap stocks relative to large-cap ones.
- Foreign central banks that haven’t done so yet will start cutting their overnight lending target rate equivalents. The goal will be to keep their currencies from appreciating too much in order to protect local manufacturers. Whether that sort of thing really works is a matter for debate.
- Even with lowered borrowing costs due to Fed rate cuts, small businesses – particularly low margin local establishments and smaller franchise owners – will continue to struggle due to shifts in consumer behavior. Although the official inflation gauges are coming down, prices at, say, dining establishments for a family of four, are uncomfortably high for many.
- Universal Pictures believes it has a potential hit on its hands with its big screen take of the famous musical “Wicked.” It turns out they do, proving a movie musical with a good cast, good production values and a good score can still bring people into the theaters. If nothing else, the first weekend will be a smash, as millions of fans will go to see if Ariana Grande can pull off the role of Galinda. Odds are, she can.
- The labor markets will continue to cool, but not collapse, during the 4th quarter. As a result, the official unemployment rate should increase slightly during the last three months of 2024. However, given the Bureau of Labor Statistics’ (BLS) antiquated methodology for calculating it, it is anyone’s best guess just how accurate the numbers are.
- Housing affordability for first time-homebuyers is at or near all-time lows. Regardless of who wins the election, there will be increased pressure on Washington to “do something” about the problem. The issue is primarily with the existing supply of housing for sale, not the demand. Unfortunately, Washington will focus on the latter, potentially making a bad situation even worse.
This content is part of our quarterly outlook and overview. For more of our view on this quarter’s economic overview, inflation, bonds, equities and allocations, read the latest issue of Macro & Market Perspectives.
The opinions expressed within this report are those of the Investment Committee as of the date published. They are subject to change without notice, and do not necessarily reflect the views of Oakworth Capital Bank, its directors, shareholders or employees.