Trust Investment Management
The markets took a breather in October after posting robust returns so far this year. The international markets were down in the mid-single digits. U.S. large and small caps also retreated moderately. Fixed income offered no respite and closed out the month lower. The upcoming election, rising yields, as well as concerns regarding inflation were key headwinds.
Markets do not like uncertainty, especially when it involves future economic policies. However, the presidency has not historically been a primary driver of the stock market, with returns tending to be positive over time, absent a financial crisis, regardless of who holds the office[1]. Nonetheless, there is growing uneasiness with respect to the national debt as both presidential candidates are stumping on tax cuts and additional spending programs.
The Fed cut interest rates by a hefty 50 basis points in September as it began what is expected to be an ongoing easing of monetary policy. The CME Group’s FedWatch Tool suggests a high probability of two 25 basis point cuts for the remainder of this year (98% in November, and 82% in December). Additionally, there is an 82% probability that the federal funds rate will be at least 1.00% lower from their current levels by the end of next year. Even so, stronger than expected economic data may eventually reinvigorate inflation which could impact future rate cuts and push yields higher.
The International Monetary Fund (IMF) released its updated World Economic Outlook in late October and expects global growth to remain stable at 3.2% in 2024 and 2025. U.S. growth was upgraded which offset downgrades to other advanced economies. The IMF noted that global disinflation continues, however, if this process is interrupted it could prevent central banks from easing monetary policy. The organization concluded that it was time for countries to focus on fiscal policy and guide debt back down to more sustainable levels. Let us hope for a peaceful transfer of power, and that our next president will make this a priority for the United States.
[1]Forbes, "How The U.S. Election Will Impact The Markets," 28 10 2024. [Online]. Available: https://www.forbes.com/sites/simonmoore/2024/10/28/how-the-us-election-will-impact-the-markets/.
