Gill Capital Partners October 2024 Market Update
It’s hard to believe that it is already the end of October and Halloween is upon us. The most ominous of ghouls this year is the upcoming election, which has people on both ends of the political spectrum spooked. Stock markets are not afraid, however, as they are at or near all-time highs despite the high-interest rate environment and charged political climate. We will get into all of that and more below, and of course provide our views, but first, a few interesting Halloween facts:
One in five adults usually pretend not to be home on Halloween.
“Trick or treat” was not the original phrase children would shout to receive candy. Instead, kids would yell, “Belsnickel,” which originated in Germany. Kids dressed in costumes and went around to their neighbors to see if they could guess their identity and were rewarded with treats.
The Library of Congress reports that the colors of black and orange originate from the Celtic festival of Samhain, a Gaelic celebration marking the end of the harvest season and beginning of winter. Early Halloween celebrations date back over 2,000 years, with Irish immigrants playing a significant role in popularizing the holiday in the U.S.
Halloween is the second largest commercial holiday in the country, second only to Christmas.
Candy corn was originally called “chicken feed” and the original recipe has gone largely unchanged since the 1880s. The most popular Halloween candy, however, is Reese’s Peanut Butter Cups, according to candystore.com.
2024 Elections and the Impact on Markets
Let’s begin by addressing the elephant in the room: the upcoming election. We know people are anxious about this election and ready for it to be over. We will not forecast who will win the presidency or any of the down ballot elections. However, we do like to point out that historically, as shown in the chart below, the stock market has performed well with both democrats and republicans in the White House. In fact, studies have shown that one political party’s control over the white house does not have a statistical correlation to market performance.
Our view – Potentially more important to market outcomes than the presidential race is the makeup and control of Congress. Presidential edicts and authorities are limited in scope and scale by design. The more permanent and long-lasting process of creating and amending laws and statutes still requires the approval of Congress. This is why congressional makeup is so critically important. While we will refrain from making any political predictions, it appears that there is a reasonable chance that we are once again headed for a split Congress with razor thin margins, which will likely lead to a difficult backdrop for policy creation and implementation regardless of who is in the White House. We are also ready to put this election behind us! Our Investment Committee continues to believe that the fundamentals of the economy, including interest rates, the labor market, and corporate earnings, most directly impact the investment markets… much more than the ever-changing political landscape. For now, the economic backdrop is quite strong, and markets are reflecting that.
Economic Updates
If economic fundamentals are so important to the direction and stability of markets, where are the fundamentals today?
GDP – Gross Domestic Product (GDP) is the broadest measure of economic output and performance. We just received an updated look at GDP this week that showed the economy grew at an annualized pace of 2.8% during the third quarter. While this was slightly lower than the 2.9% market expectation, it is still strong growth by historical standards. To put it into perspective, the average GDP over the past 25 years has been approximately 2.1%.
Inflation – We will get another look at inflation in about 2 weeks but, as shown below, inflation is clearly trending lower towards the Fed’s goal of 2%. The Fed’s growing confidence that inflation is coming under control has enabled them to initiate the rate normalization process by cutting rates last month.
Labor Market –The unemployment rate, as shown below, sits just above 4%, well below the historical average of over 6%. While the labor market has softened a bit as of late, it remains very robust.
Our view – While the above are only a few of the major economic indicators, they are drawing a picture of a healthy economy. The stock market at all-time highs agrees, as do credit markets that are exhibiting low levels of default risk. This economy is not perfect, but its resilience during this recent interest rate cycle is nothing short of phenomenal. It appears that the Fed has, at least for now, accomplished what nobody thought that they could: break the back of inflation without crashing the economy. Our hats are off.
Enjoy Halloween, whether you will be trick-or-treating or hiding inside with your lights off enjoying a quiet night.
As always, please let us know if you have any questions or concerns, or if we can provide assistance with any other financial planning matters including education, taxes, insurance or estate needs.