INTEREST RATES
After 18+ months of agonizing about when it would do so, the Federal Reserve finally cut the overnight lending target rate during the quarter. In truth, it was somewhat anticlimactic. The sun came up in the East the next morning, and people went back to wondering when it would do so again.
INFLATION
Officially, inflation is coming down in the U.S. economy. This means the rate of pricing increases is lower than it previously was. It does NOT mean prices are going down. Not surprisingly, this has confused many American consumers who still get sticker shock when they go to a grocery store or restaurant.
EQUITY OPTIMISM
Despite the continued rally and multiple expansion in U.S. stocks, they still seem to be the most reasonably valued of all overvalued asset classes. It seems domestic investors would rather take their chances on corporate America generating a profit than the U.S. Treasury being a good steward of the public coffers.
GLOBAL UNCERTAINTY
Despite better returns during the 3rd quarter, international investments have continued to lag domestic ones in 2024, in aggregate. The reason for this is simple. Is there a legitimate long-term alternative to the U.S. dollar as the world’s primary reserve currency? Also, which sizable, developed economy is poised to outperform the United States for the foreseeable future? The answers to these questions are extremely unclear.
REPUBLICAN VERSUS DEMOCRAT
During the 3rd quarter, the Democratic Party proved it has stronger leadership and greater unity than the Republican Party. The GOP would struggle to accomplish what the Democrats did – removing a sitting president from their ticket – without significant internal conflict, about as likely as f lying to the moon.
THE UNITED KINGDOM
In July, the Tory Party lost the general election in the UK in historic fashion. The previous prime minister, Rishi Sunak, has already vanished into irrelevance, and the new one, Keir Starmer, is apparently realizing the enormity of the mess he inherited.
CORPORATE EARNINGS
In aggregate, U.S. corporate earnings continue to prove surprisingly resilient, even if unremarkable. However, this has been more than enough to keep new money f lowing into the stock market and prices climbing.
GOVERNMENT DATA DEBACLE
Thanks to some noticeable, and sizable, negative revisions to key economic data during the quarter, investors are increasingly questioning the accuracy of the government’s official statistics. This isn’t a good thing. At a minimum, the various agencies should examine their current methodologies for potential improvement.
STOCK MARKET RESILIENCE
The traditional “summer swoon” in the stock market didn’t happen this year. There wasn’t any real “sell in May and go away” in 2024. Not surprisingly, the reasons appear to be the anticipation of Fed rate cuts and the sheer amount of liquidity still sloshing about in the financial system.
POLITICAL SKEPTICISM
There were two assassination attempts on Donald Trump during the 3rd quarter. Historically, assassination attempts on major American political figures are very rare. However, in 2024, the deep-seated cynicism in our society led many to suspect they were actually staged for political gain. This level of distrust makes one wonder whether outside forces are trying to defeat the U.S. by fomenting discord from within.
U. S. STRENGTH AND RISK TOLERANCE
The money has been so easy in the investment markets over the last 18 months, reinforcing the belief that Americans are relatively tolerant of risk. It also strengthens the belief that the United States remains a more attractive investment option compared to the rest of the world. Why either political party would want to mess that up is beyond me.
VOTER AMBITION
As the presidential campaigns progress, it is becoming increasing apparent this election is less about voting for a party’s policy platform than it is voting against the other party’s nominee.
GOLD
Through September 25, gold is up almost 30% year-to-date in 2024. That is a pretty hefty return for a hunk of metal that doesn’t pay interest or generate a profit. While it has historically been a safe store of value due to its scarcity, what does gold’s performance tell us about global investors’ perceptions of the world? Intuitively, it probably isn’t good. Glad we own some.
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.