06 Sep 2024
Welcome to our weekly newsletter, where we summarise market activity over the past seven days.
Market Weekly
Market Weekly
Following the recent news of President Joe Biden’s decision to withdraw from the US election race, the media frenzy around the 2024 US election shows no signs of abating.
The race now is tight between Vice President Kamala Harris and former President Donald Trump. Both candidates are actively campaigning with the polls currently showing a very close contest. Harris and Trump are neck-and-neck in several key swing states and the outcome in states like Arizona, Georgia, and Pennsylvania could be pivotal to the final results which will be revealed on election day, (Tuesday 5th November). As expected, pundits from both sides are warning of economic consequences if the opposing party wins. Republicans criticise Biden’s deficit spending on environmental initiatives (a priority that is likely to persist), while Democrats warn of the risks associated with Donald Trump’s unfunded tax cuts. Ultimately, the key driver of equity returns will be tangible policy changes. Here are 10 key policy related areas for investors to keep a close eye on over the next few months:
The US election is likely to bring about uncertainty for investors due to its significant economic impact and the stark differences in policy proposals between the candidates. However, predicting the political outcomes and the precise economic impacts is notoriously difficult. There are often discrepancies between campaign promises, actual policy intentions, and what can realistically be implemented once in power. Particularly given this uncertainty, in portfolios we focus on ignoring the noise and sticking to our long-term investment goals and strategy. In the long term, changes in government policy have a more profound impact, especially considering the significant role governments play in the economy through spending, borrowing, and regulation. Traditionally, investors might have focused on different sectors (e.g. healthcare) or asset classes (e.g. bonds) for diversification, but it is also sensible to consider geographical diversification. Allocating into multiple overseas markets and getting exposure to different currencies can help mitigate the elevated political risk possible in the coming years.
The Noise
The Nuance
It has been a busy week for those tracking US economic indicators, with a long list of key data points to keep an eye. As the Federal Reserve have conveyed time and time again, its interest rate decisions are data dependent. As a result, markets have been combing through data more than ever ahead of a potential first rate cut on September 18th.
Looking at the data released on Tuesday, US construction spending fell 0.3% in July, with economists expecting no change to spending. This was a result of higher mortgages and increased supply. This has forced builders to hold back on breaking ground on new projects. The manufacturing PMI improved slightly to 47.2 in August, but the index remains below 50, the mark which separates growth from contraction. New orders have continued to decline as inventories grow, suggesting factory activity could be subdued for a while.
US job openings fell in July to the lowest level since the start of 2021, consistent with signs of slowing demand for workers. Economists had expected 8.1 million job openings, higher than the 7.67 million shown in the data. Job growth has been slowing, unemployment is rising, and jobseekers are having greater difficulty finding work. Policymakers are evidently worried about this and have made it clear they don’t want to see any further cooling of the labour market. The US service sector showed resilience, one of the few data points to avoid a contraction.
Given much of this week’s data improved the odds of a Federal Reserve rate cut, Treasury yields tumbled, boosting Treasury prices. The next data points to look out for will be for payrolls and unemployment, which will give further indication of the US economy’s direction of travel.
Disclaimer
All investment views are presented for information only and are not a personal recommendation to buy or sell. Past performance is not a reliable indicator of future returns, investing involves risk and the value of investments, and the income from them, may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.
Any views expressed are based on information received from a variety of sources which we believe to be reliable, but are not guaranteed as to accuracy or completeness by atomos. Any expressions of opinion are subject to change without notice.
The value of investments and any income from them can fall and you may get back less than you invested.
The value of investments and any income from them can fall and you may get back less than you invested.