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1. Throw out the gridlock playbook.
- Sure, markets like stability (knowing nothing will change), but they love a pro-business government more.
- A red sweep will usher in an elevated interest in growth.
2. The interest rate pop is overdone.
- Trump's tariffs weren't the prominent driver of inflation the first time (according to the EPI) - went into place in 2018/2019 and inflation didn't move higher until March 2021.
- Goods have experienced deflation in the past 4 of 5 months.
- Services are driving higher inflation.
- The extension of current tax policy and any additional cuts or spending will have an impact on inflation.
- Perhaps that is partially why there was a 60 bps bump in yields from the time the Fed cut to yesterday.
- Rates likely to remain elevated, but stable in 2025.
3. Fundamentals » Politics
- Businesses have clarity on the direction of tax policy (a large overhang).
- Earnings growth is poised to return to double digits in Q4 and 2025.
- Real GDP has averaged 2.9% for the past nine quarters.
- Technology innovation is driving growth opportunities.
- Manufacturing and housing remain the struggling parts of the economy.
- Seasonality is strong over the next six months.
I expect the momentum to continue into the year end as business and consumers feel the relief of the election overhang.
Don't hesitate to reach out if you have any questions,