Possible Election Implications for Stocks

Jeff Buchbinder:

<Silence> Hello everyone and welcome to LPL Market Signals. Jeff Buchbinder here, your regular host for this week with my friend and colleague Quincy Krosby live from Hawaii, although you'll be seeing recording, so it won't be live. Quincy, how are things in Honolulu?

Quincy Krosby:

Lovely. Aloha. Just beautiful as usual, and I'm so grateful for being able to come here the lovely people in Hawaii, in Honolulu. I feel so grateful, especially before the election. It's a great place to sort of take a deep breath and just say, okay, the waves are going to come in and we're going to deal with it.

Jeff Buchbinder:

We're going to get through it. If there's any better place to get through an election than Hawaii, I don't know what it would be

Quincy Krosby:

True. Yeah,

Jeff Buchbinder:

I also think it's a great place to watch the election results because it's so much earlier than it is here in Boston, east coast times. So smart move to plan your trip this week. So you know, who knows? Maybe you'll see a winner before you go to bed, although I wouldn't necessarily count on that. But thanks for joining, even from so far away. I think this is a Market Signals first, I don't believe we've ever had anybody on from Hawaii. Here's our agenda. It's pretty much all election. We'll do a little bit of a recap of last week. We'll do a little bit of a week ahead preview with the Fed. I would argue that this week is, you know, 90% election. Yeah, maybe 8% Fed and 2% earnings season. That's maybe how <laugh> the market's attention is going to play out.

Jeff Buchbinder:

It's going to be all Trump Harris all the time. And we got to watch the Senate and the House of course, as well. So in terms of, you know, bucketing the election topic, we're going to focus, because you could talk all day and all the media outlets are, right. You could talk all day about election dynamics. But we're going to focus in on what we think is market moving. So number one, trade and tariffs. Number two, the tax negotiations next year. And number three the regulatory environment. That's really where we see the potential for the outcome to influence markets. Although I'll start right off the bat by just saying that it's really the economy, corporate profits, interest rates, inflation, right? These are the fundamentals of the market that really drive stock prices. Policy can really only impact the market on the edges.

Jeff Buchbinder:

So we would just keep that in mind, especially this election, which is likely to see either divided government or very narrow majority. So start with last week. I mean, Quincy, the big story last week I think was just rates up stocks down. The S&P was down 1.4%. We had you know, the S&P broke, its six-week winning streak last week or two weeks ago. So now we've had two straight down weeks. Nasdaq was down for the first week in the past eight, down about the same as the S&P 500 down one and a half percent. You know, given the economic data was generally pretty good, if you adjust the jobs report for the you know, the weather and the strikes. Do you think this market just kind of needed a sell off? I mean, what, other than maybe rising rates, what do you think caused the market volatility last week, pre-election jitters?

Quincy Krosby:

Well, yeah, I mean, the mixed messages from mega tech that certainly good point that certainly actually affected the market when we hear, you know, that they're going to have to spend quite a bit more and more capital expenditures for AI infrastructure. And then hearing from another mega tech, yet, by the way it hasn't been integrated as much as we thought. And then questions about you know, hardware sales and so on, the market received mixed messages. And, you know, the market is pretty discerning, but also you have to admit that we were very much overbought. And whenever you are in an overbought scenario, normally normally the market is going to be a bit more sensitive. Now, we've had overbought markets in this bull market that have lasted a very long time, where you're sitting there waiting, what's going to happen to push this market back a little bit, to cut the market, sell off a little bit?

Quincy Krosby:

Well, this time you know, an overbought market, the yields went up and there was a debate about the Treasury yields. Was it about Trump? Was it a signal that the market believes Trump is going to come in and that yields are going to rise because of the tariffs because of you know, all of the taxes that will be enjoyed by corporations and individuals? That was one catalyst. The other side of that argument was, hey, wait a minute. The economic data release has actually been quite, you know, surprising to the upside, and that's why the yields went up. But nonetheless, the market, the equity market, was not pleased with that. And that became a catalyst for the market to sell off a bit. The question now really is, is the market telling us what it thinks is going to happen tomorrow with the election?

Quincy Krosby:

You see the dollar is pulled back, you see the yields have pulled back, and is that the market saying, hmm, you know, maybe now we need to adjust our predictions. So, it's been confusing. Nonetheless, the question now is, are we oversold and market by all metrics looks as if we are in oversold territory or getting very close to oversold territory. And, you know, statistically Jeff, you pointed this out, Adam Turnquist has pointed this out, coming right up to the election, very often the market is quite a bit dicey. And then we get through the election, and if there's no answer tomorrow night or even, you know, by the end of the week, the market could pull back a bit before seasonality actually takes hold, which is positive seasonality.

Jeff Buchbinder:

Yeah, good points there. I would add you know, we had some disappointing guidance from AMD, right? So you had some weakness in semiconductors last week. Yes, yes. Kind of in addition to the Mag Seven names that reported that were, again, mixed, as you say. So, I think that was probably maybe an under-reported cause of the weakness in addition to the rising yields and the you know, some of the weakness in Apple, some of the weakness in Microsoft, a little bit in Meta et cetera. So let's move on to the bond market and currencies and commodities. I think, so the energy sector was down last week. You actually did have a five day decline in crude prices based on the futures market. But I ran these numbers this morning, and they're actually giving you the move in futures for crude today in the five day window.

Jeff Buchbinder:

And removing last Monday <laugh>, so last Monday, crude was down like 6%. Today crude is up several percent. So that up 5.9% in crude the last week is a little bit misleading. Just wanted to clarify that. Clearly the, you know, the energy stocks is what it's all about. And they were they were down. So here you see the move in rates, you know, the Bloomberg Bond Market Index down 0.6%. You know, we've lost about three points in the bond market recently. The year to date return is only 1.4%. As rates have moved higher up to around 4.3, we think they're going to settle down. Our chief fixed income strategist, Lawrence Gillum, who was on last week, is sticking to his forecast since the team's forecast that four and a quarter is as high as we're going to get on the 10-year yield at year end.

Jeff Buchbinder:

But it could be a little bit volatile up to maybe 4.50 in the very short term as we get through this election uncertainty. I guess, you know, Trump is probably more bullish for rates, and then Harris is maybe a little more bearish for rates, all else equal. But we'll just have to wait and see how the market reacts. Sometimes these reactions are very difficult to pin down in terms of what's driving them. I'll show you a chart of rates here in a second. So, Quincy, you mentioned we're getting near oversold that that's true. We're pretty much right at the 50-day moving average on the S&P 500, a little over 5,700. There's some support near the July highs at 5,652 if we move lower. And then that's the September low 5,406.

Jeff Buchbinder:

So those would be the next levels that we'd be watching for potential support and a pullback. And frankly, you know, we've expected a pullback for the last couple months, and we haven't gotten, maybe this is the week that it starts. We'll have to see. I mean, we are what, 150 points off the highs. So it's a little bit of a pullback, but it hardly qualifies. We think you have to go maybe down a little more. And then here's the chart of the 10-year yield from Lawrence. I think you know this looks like a bullish chart, but certainly some of this is Trump trade. And if Trump doesn't win, this is probably going to roll over. And if the economy slows as we expect over the next several quarters, this is going to come down, in theory. Inflation is ebbing. So would you agree with that call Quincy, that, you know, rates are probably going to settle down here and then turn lower here before long.

Quincy Krosby:

Well, I do have to point out like, you know, I don't mean to come into this and disagree mightily, but we also have to keep in mind that maybe we have reached the bottom in inflation for now, but that it's poised to tick higher in the PCE report. I love to say this, Personal Consumptions Expenditure Index, the PCE, the Fed's preferred measure of inflation. You did see that 2.7% year over year core, that is sticky. That is sticky. The rest of the numbers that all came in within consensus estimates, but you don't want to see that number climbing higher. You want to see that number pulling, coming back down. And we have to question that. But here's another one. Last week we had the ISM, Institute for Supply Management manufacturing report, and these are important. We look at those reports, break them down, but one of the areas that we pay very close attention to is the prices paid.

Quincy Krosby:

That moved up a bit too much. And this week we're going to have the ISM, Institute for Supply Management service sector, the largest portion of our economy. And we'll be looking at expectations for new hiring, new orders, but we'll be looking at prices paid. This is going to be, if you are in the camp, and there is a camp that says we're going to have some form of maybe stagflation light going into the end of the year, and certainly into the first half of 2025. These numbers are going to be what's played back and said, see, we told you so. And that's why I think the ISM report this week on the service sector is going to be crucial. So this notion that inflation has been quelled completely, there's a view that not quite yet, we need more verification that that is the case. So, I'm not suggesting that this is going to be, again, a version of the 1970s. No one is suggesting that even in that narrative, the cohort that sees this happening. But nonetheless it's really important for the market to pay attention to. And yet the market is convinced we'll get 25 basis point cut this week. And then perhaps the fed funds futures market for December is a little bit lighter, but certainly still pointing in the direction of another rate cut in December.

Jeff Buchbinder:

Yep, absolutely. Good sort of teaser for the Fed section here, which we'll get to in a little bit. Last thing on rates. This is a chart that breaks down the rate move since mid-September, into a inflation expectations and growth expectations. And you see here on this chart, the growth expectations bars in orange are bigger than the inflation expectations, right? So what does that mean? It means it's better economic data and the market expecting better economic growth that's driven yields more so than inflation expectations, which is, you know, tips break evens. So I think, you know, growth is, you'd rather see growth than inflation expectations drive yields. I mean, frankly, you'd rather see this mix even more dominant on the growth side. I think we would argue that growth is unlikely to accelerate further from here. So maybe we've gotten as much out of the growth picture in terms of rates as we're going to get.

Jeff Buchbinder:

Of course, we'll wait and see the election is a wild card. So there's a segue to the election, Quincy, where I want to spend most of the time. This is a hard election to trade because, you know, based on the polls, it's really close in the swing states. Of course, the swing states is really all that matters. Although, you know, these headlines over the weekend about Harris making a move in Iowa and maybe even being closer in Kansas than she normally would be, or Democrats normally would. So, you know, maybe tune out all that noise and just look at a combination of the national polls, the betting markets, and all these things. It's close. So that's why we say this is a hard one to trade because you really have to have conviction on a political outcome, right? Who's going to win the White House and what's Congress going to look like? I think the only thing I have conviction on is that the Republicans are probably going to take the Senate. I don't know if there's anything else you have conviction on Quincy that you want to share here. Otherwise, let's get into our market moving topics.

Quincy Krosby:

No, but I do think that for both parties in the White House now, gridlock is what the market wants. Normally it would just be associated with a Democrat in the White House, that the market prefers gridlock, and that a clean sweep for the Republicans was okay, but given the concerns over more tariffs, heavier tariffs, and also series of tax cuts and the deficit just basically climbing higher, the market increasingly is looking as if it would prefer, even in a Republican scenario, to have gridlock there as well, which is something I've just been watching. I didn't think it would actually materialize, but that is actually what I'm seeing, if I take all of the political strategists views on this, and again, something to put a lid on spending. And I want to add one thing, and that is people say that the Democrats and Republicans just don't agree on anything. I say, oh, yes, there is something that they agree on. You know what that is, Jeff? We haven't heard either party talk about the deficit. That's what they agreed on. We're not talking about the deficit. They refuse to talk about the deficit.

Jeff Buchbinder:

Neither side cares. That's right.

Quincy Krosby:

That is what they agree on. Don't talk about the deficit.

Jeff Buchbinder:

Problem for the next administration. So, I mean, it'll be a little bit of an issue when the horse trading starts for the tax cut expiration. Yeah, yeah. At the end of 2025, is that we're getting a little ahead of ourselves, but you're right, that's why I think rates might be the most important Yes. Barometer of how the election is factoring into markets.

Quincy Krosby:

Exactly.

Jeff Buchbinder:

Mm-Hmm. <Affirmative>, you could also argue that China and Mexico, either the currencies or the equity markets, are really good barometer of election sentiment because, you know, Trump will be tougher on trade, presumably, and be more aggressive with tariffs. What do you think about that?

Quincy Krosby:

Well, I pay very close attention. You know, I had someone say, what do you not pay attention to? But I pay attention to currencies, especially the Mexican peso for a variety of reasons. One is that the Mexican peso, by the way, was a very favorite destination for the yen carry trade. And if anybody noticed the yen has come down, the carry trade is alive and well. And the peso was a destination. But absent that, take a look at the, where the peso went. It climbed higher. It moved much higher. And that is also being included in that, oh, you see, this is the currency market saying mm-hmm, maybe not so fast with the predictions for Trump because obviously the expectations were, and a fear that the Trump was going to, you know, basically be harder on Mexico than say Kamala Harris.

Quincy Krosby:

And so they're looking at that move in the peso climbing higher as an indication of a coupled with, by the way, coupled with the Treasury yields coming down, as an indication that perhaps the Trump trade initially was a bit too heavily skewed toward the Republicans. It's fascinating because in many ways, everyone now is looking at the dollar on the Treasury market versus the betting markets. That's what's so fascinating. The betting markets were there, everybody looking at predict and so on. And now that's moved away, now they've substituted the Treasury yields, and the currency as a substitute for the betting markets. I find that fascinating.

Jeff Buchbinder:

Sure. And all the Wall Street firms have built their baskets of stocks that should do better under Trump and should do better under Harris. And I think this is why Wall Street's consensus is that Trump is a slight favorite here. Yeah. Because a lot of those indicators are pointing toward Trump. But, you know, there are a couple of indicators pointing firmly toward Harris. You know, one is the misery index, right? When you add together the unemployment rate and CPI, that's predicted 15 of the last 16 presidential winners. So keep that in mind. And then that's down. And so it's pointing to Harris and then the S&P 500, it's, I think it's predicted 20 out of 24 elections. If it's up the three months before election day, that's a positive sign for the incumbent. Now, we don't really have an incumbent, you could argue.

Jeff Buchbinder:

Exactly. Yeah. and this boy, this election cycles just very different, I would say, than maybe the ones in the past. So take those indicators for what they're worth, but you can find plenty of support for either outcome. But, you know, back to the trade and tariffs thing, I think, again, you don't want to watch China and Mexico, of course, those two countries are, you know, together a big chunk of the emerging market index. I think emerging markets could be very volatile. We're waiting to see what happens. Both candidates want to deglobalize and be tough on China, both parties. So it's just a matter of degree, we would say. So, you know, as I said upfront, wait for the outcome. And then maybe you make a move on emerging markets depending on what outcome we get.

Jeff Buchbinder:

But we're certainly, we don't want to be in the market of trying to predict this election and move ahead of it. I think tariffs are interesting because they affect corporate profits immediately, right? They hit the bottom line so they can affect companies on day one, right? I mean, tax cuts are the same way, right? If you pay more taxes, your stock's going to adjust immediately. So those really have direct impact. So, let's go to taxes. Quincy, I think the negotiation in 2025 is going to be really, really interesting. Both candidates want to extend the tax cuts, although Harris only for income's 400,000 and up. And then you know, she wants to add some child tax credits. I know I'm sort of simplifying, the negotiations are going to be very complex. There's a lot of elements to this, but I think high level, just to keep it simple, that's the big difference. So Trump's going to extend more, or at least try to, if he has the votes than Harris. And so that might be one reason why the market would react more positively to Trump than Harris. What do you think, Quincy?

Quincy Krosby:

Absolutely. I mean, you, you know, corporations like tax cuts. And President Trump on the campaign trail said he wanted to actually lower the corporate tax. Even the fact that he lowered it so much to make the country corporate America competitive. In fact, where our corporate taxes were before those tax cuts came, we were in another zone, no other country in the modern world had corporate taxes as high as in the U.S. So now, you know, he brought the taxes down. And now on the campaign trail, he said, I want to lower them even more, which is very appealing for corporations. There's no doubt about that.

Jeff Buchbinder:

Right. He's talking about for domestic based manufacturing, right? Not just a straight cut from 21, or yeah, from 21 to 15, but make it conditional. Still, it's going to be lower than 21 all in. Yeah. So you're right. It would be a cut, and that would be a boost to corporate profits. And I think that's why small caps fit into the Trump trade. They're more domestic, they pay higher taxes, therefore they are potentially positioned to benefit more from tax cuts than large caps. And then you could flip that, right? And say that if Harris wins and tax rates go up, she's going to potentially have to deal with a Republican Senate. So maybe end up getting something like 21 to 25, or maybe even 21 to 23 <laugh> as a compromise. This horse trading is really hard to predict. But if it's divided government under Harris, yeah, you're going to see the rate go up. I would say there's a second thing I have conviction on that, that corporate rate is going to go up as you know, that horse trading takes place. So, you know, I guess all of these outcomes are pretty much extend or extend most. So Quincy, do you think the market's going to react in a negative way if Harris wins and the Democrats take the House on the tax cut issue?

Quincy Krosby:

Well, you know, we always say that the market, it doesn't matter who's in the White House, right? That ultimately, ultimately the market just moves on based on corporate earnings and the economic landscape underpinning the market. So the question then becomes, everything points to the deficit. That's the problem. Everything points to the deficit. What is it now? 36 trillion? So you could make the case that if you are going to be easy on taxes and benefits across the board, what does it do to the deficit? And if that's where, that's where both sides have come, you know, moved more and more towards each other and promising all sorts of benefits for their respective constituencies. But the fact of the matter is all benefits ultimately push the deficit higher. That's what it comes down to.

Quincy Krosby:

And that's why the market is concerned. It is about that deficit. Because the question is, what happens? How do you pay for that? How is it ultimately paid for? And Jeff, you know, that ultimately if they can't do anything about it and start cutting, which is the third rail of politics, there's no doubt about that, that ultimately taxes go up. And one thing about every survey in this country from Republicans or Democrats, it is go ahead and tax the billionaires. That's easy. Americans again cross the board, oh, let the billionaires pay for all of this. The concern with that is once you start there, ultimately, they start coming down towards where you are. And I will not name names, but the left wing of the Democratic party has already been out there suggesting, oh, don't have that $400,000 limit of where you tax and don't tax.

Quincy Krosby:

Let's go down to the $200,000 income earners. That's what happens. So you start with the billionaires, and ultimately you start working your way down. And that's the concern. But the point I do want to make and stress is that every survey I have looked at from the Republican side and Democratic side, Americans are like, hey, why are you looking at us? We work hard. You know, we have to still deal with inflation, even though you say inflation has come down, let the billionaires pay for this. And, you know, this seems to be the answer for everything, is allow the billionaires you know, you see what's happening in the U.K., Jeff, look at how many are looking to get out of there so the ones domiciled, get out of being domiciled in the U.K. out of London, just get the heck out of there because they're going to tax you across the board. That's always the threat, is that you'll lose those billionaires and multimillionaires and they'll leave and they won't even be available for any taxes.

Jeff Buchbinder:

And that's why you see the international tax rate actually matters too, this global minimum tax. Yeah, that'll be part of this horse trading as well. So they want to try to prevent companies certainly from leaving.

Quincy Krosby:

Exactly, yeah, exactly.

Jeff Buchbinder:

So another example of how complex and multifaceted the tax negotiations are going to be, there's just so many levers. You know, tariffs aren't enough to pay for tax cuts, not in any meaningful way. So we're going to have to.

Quincy Krosby:

Capital gains, Jeff, capital gains.

Jeff Buchbinder:

Oh, capital gains. Oh, sure. We're not going to get a tax in unrealized gains. No. But certainly no capital gains tax rates, that's a popular tax rate to increase for the Democrats no doubt. So yeah, so this could absolutely cause some market volatility here around tax increases potentially in 2025 or at the end of 2025, which of course are dependent on the election outcome this week or whenever we get the outcome. So last one I want to talk about Quincy is deregulation. Of course, this is certainly a key element of the Republican platform, and we've seen it before in Trump 1.0, deregulation on the banks, help the banks right after the election in 2016, probably would help the banks again in 2024 if Trump does win. Are there any other, I mean, that's kind of obvious. Are there any other sort of regulatory areas that you think people should be paying attention to in terms of, you know, Harris and Trump having different approaches?

Quincy Krosby:

Yeah, crypto, that's one of the, that's a good one. That is one of the areas that has been watched as they tell for Trump. A Trump win is seeing how crypto is doing, because the expectations are, it will not be as heavily regulated as perhaps under a democratic win. So that's another area. One other area that is fascinating to me, because, you know I watch the energy sector so closely is that under Trump, there'll be more deregulation or an easier regulatory framework for the energy sector. Here's the irony. The irony is that under Biden the mergers and acquisition, the deals have been coming nonstop. That began with ExxonMobil taking over Pioneer Natural Resources, one of the biggest players in the Permian Basin. And then after that, there's been one deal after another all going through.

Quincy Krosby:

No one has ever heard of, oh, we're holding it up, we're holding it up. And at the same time, U.S. producers have been number one in the world creating the largest production for any country. So that's what's interesting about it. Now you could argue as well that Biden administration, at least in the White House, I'm not going to talk about the progressives, but at least in the White House, understood, you better have nice supply because we do not want prices going up at all. We want the prices to come down. But in the business sense you actually want sort of a bit of a disruption of supply in order to get prices up. So this is where it's interesting, and the question is, if you want to drill, drill, drill, which is or drill, baby drill, you are looking at more oil production, and that helps to push the price down. So, that's why it becomes pretty tricky. But I think everyone is always surprised, well, wait a minute, I thought that the Democrats were anti-fossil fuel, well, not really, not 150% opposed to it, hardly. And that's one of the most interesting ones that I see because President Trump has tremendous backing from the energy community.

Jeff Buchbinder:

Yeah, no doubt. And here's another thing I have conviction on. You could tell me the outcome of the election, I would still have no idea where oil and energy stocks go. <Laugh>. I have conviction that I have no idea. Because I mean, Trump of course, you know, the Republicans more pro oil and gas drilling. And in 2016, the sector started a multi-year run of underperformance, energy sector did not do well in Trump 1.0. We'll see, this time of course could be different. But I agree. Just watch out for energy. It's very difficult to predict. And LPR Research has an underweight recommendation on energy, but that really has nothing to do with the election. It's fundamentals, demand and supply, and the charts, you know, oil has really had a hard time breaking out to the upside. So some really good sort of regulatory topics there.

Jeff Buchbinder:

And you know, three areas to watch, right? So banks, I guess it's, maybe it's more areas than three, but it's certainly banks, it's certainly crypto and it's certainly oil and gas. And I mentioned before, emerging markets. So the Weekly Market Commentary this week is on the election and potential winners and losers. So we put oil and gas as a potential winner under Trump. But again, sort of be careful with how you play that because we might get more supply and lower oil prices in the Trump administration. So I think, again, emerging markets is really interesting, as you know, potential winner under Harris, loser under Trump, mainly China and Mexico. And then small caps being domestic and generally being a little bit higher tax, those are interesting to watch under Trump. Rates, potentially up under Trump, but possibly down under Harris, depending on how much of a Trump premium is already embedded in rates right now at 4.30 plus on the 10-year. I mentioned banks and financials already. Anything else here that you would highlight Quincy as either a Trump trade or a Harris trade?

Quincy Krosby:

No, I mean, I just think that the overall tone of the market would be positive under Trump. I mean, if the market had a sense that there would be a Trump victory, I would think that the stock market would be higher right now. That's the way I see it, the market typically sees, even though all of the data we have going back to the 1950s, is it doesn't matter who's in the White House, the market will do well under both sides of the aisle. But nonetheless, there's a feeling that it's a Republican, they're pro-business and so on. And therefore, I think that if the market believes that Trump is going to take it, Trump is going to be in the White House, not necessarily a clean sweep, but in the White House, that the market would be up, it's instinctive. That's not scientific. It's instinctive.

Jeff Buchbinder:

And you're right, that stocks can do well under any political combination. It's really about the economic cycle and the profit cycle. Yes. Right. Related to interest rates and inflation.

Quincy Krosby:

Yes.

Jeff Buchbinder:

Those things really drive markets. So when the election has been negative for stocks, like in 2008 or like in 2000, you were in recession, that was really what was driving the market.

Quincy Krosby:

That's it, that's it.

Jeff Buchbinder:

Not election uncertainty. Yeah. That election uncertainty shows up in the first month. So this chart just shows you the average gain in the S&P 500 going back almost a hundred years. So prior to the S&P 500, it was the S&P 90, on average market basically is stuck in the mud for a month, but then it starts to gradually grind higher, I guess, as maybe the political landscape or the policy landscape starts to clarify, if you will. So, you know, on average you're up a couple points three months later. On average, you're up a little over four points six months later. And election years on average are up sort of five to 6%, which is not terrible. You mentioned Quincy, the seasonality, right? We just finished up the "Sell in May, Go Away" period, and then have entered the best six-month period for stocks historically.

Jeff Buchbinder:

Yep. So here you see the May through October period, you're on average up 1.7%. If you look at the November to April on average, you're up 7.2. So mm-hmm. <Affirmative>, you know, what is that a five and a half point difference? Yeah. So if we do sell off on the election, probably going to get some dip buyers stepping in Oh yeah. because of A seasonality. And B, it's still a good economy with growing corporate profits. The macro environment is quite good. The you know, the election of course is going to be the biggest focus tomorrow and throughout the week, but the you know, the Fed is announcing a policy on Thursday, is expected to cut rates. So that is obviously newsworthy. And then we also get over a hundred S&P 500 companies reporting earnings. Earnings season has been actually a pleasant surprise, I would say overall over the last week after a pretty sluggish start. We're actually now tracking to about 6% year over year earnings growth for Q2 or for Q3, which is actually pretty good. because when we started we were looking at four, so some nice upside from those banks, seven names that reported last week among others. So here's the economic calendar. I've got a Fed chart next Quincy, but any of this data, you mentioned, ISM services, anything else in terms of economic data that you think investors should be watching?

Quincy Krosby:

Well, yeah, I, you know, we've seen wages actually inch higher. This is very good for the lower wage earners because you coupled that with oil prices coming down that does help underpin consumer spending. And you've seen overall that you're not seeing those jumps from job to job. And most statistically, most people jump for higher wages. And the reason that's important is that it helps keep a lid on wages. We don't want wages to go out of control, because then what happens is that you know, the employer wants to pass along those higher wages to the ultimate consumer retail or corporate. So just having the wages go up and not escalating too much helps. It helps, it helps, I think consumer spending, we know is 68% of the economy.

Quincy Krosby:

And so that's resilient. Gasoline prices coming down helps as well. And overall, the GDP, the first read came out by the way, for Q1, Q4 rather, period we're in now. And that's coming in maybe not stellar obviously, but certainly solid. And that's what we're looking for, a solid backdrop and underpinning for the market because as you say, bull markets don't die of old age. It's such an old thing, but it's so true. It dies primarily because a recession hits and it's hard to see a recession with this series of solid economic data releases.

Jeff Buchbinder:

Yeah, great point. So, you know, we often say at LPL Research that don't let politics influence your portfolios, express your political views at the polls, right? Mm-Hmm. <Affirmative>. And so the economic and you know, corporate foundation under this bull market is still very strong. You know, you can argue about whether it's too strong and whether it's been juiced by stimulus and all of that. Certainly, you know, as Quincy expressed, maybe inflation takes a little bit of an uptick in the near term. You could certainly make that argument. But this is about as good of an economic environment as you could have when the Fed is restrictive and starting to cut rates. Mm-Hmm. <affirmative>. So in other words, don't get too per, I think that's the bottom line. Even though there's certainly going to be a lot of divisive rhetoric out there, as there has been, unfortunately during an election campaign. Stay above the noise

Jeff Buchbinder:

and this market should, should do fine really under any political outcome, any election outcome, I would argue even if we do get a pullback. So here's the Fed rate cutting expectations in the fed funds market, and you can see that, you know, the 25 basis points this week is a hundred percent pretty much priced in. Yeah. And even a December cut of another 25 is almost fully priced in, 85% when we ran this at the end of last week. I think it's even inched higher, a little bit more today, here, just in the last couple hours. So we're going to get a cut. We're probably going to get two. Powell's going to take some pleasure in announcing <laugh> that this process was not driven by the election. And you know, it's driven by the fundamentals of the economy and the Fed is still a little bit too tight. So any closing remarks Quincy, before we wrap up?

Quincy Krosby:

Yeah, I just want to point out that when we look at the Fed, take a look at the composition of the Fed of the Republicans and Democrats, you're going to see some very staunch Republicans at the Federal Open Market Committee. That's the group that the policymaking. And that's important because many people are taking a look at this and saying, oh, the Fed is being political on the democratic side. No, I mean, you could see some of, again, of the speeches coming out from the Republican side of the Iowa Fed and endorsing these policies. And keep in mind as well, the Fed didn't always have much independence. Much of it came about, would you say Jeff, right in the seventies when the Fed became more independent. But the Fed, again, has been led by Republicans. It's been led by Democrats, but the composition of the Fed is heavily Democrat and Republicans, very staunch Democrats, very staunch Republicans. And somehow, they come together as best they can, trying to come up with policy that will help the two mandates. We always have to remember, they are a two mandate central bank, price stability, which is the inflation one, and maximum employment, which is the labor market one. We are unique in the modern central bank world to have two mandates.

Jeff Buchbinder:

Yes, absolutely. Great points there. I'll just say regardless of what happens in this election, democracy will survive <laugh>. It appears fragile at times. Yeah, unfortunately. But it'll survive. And maybe the Fed, as you laid out, Quincy, is giving us a roadmap for you know, cooperation between both sides of the aisle. <Laugh>. Yeah.

Quincy Krosby:

Yeah, probably.

Jeff Buchbinder:

No, it's a little bit wishful thinking maybe to get that more broadly in the House and the Senate. But you know, hopefully it doesn't get any worse from here and maybe it can slowly get better. So with that, we will wrap up. Again, the Weekly Market Commentary is an election playbook, so you can find that on lpl.com. Thanks Quincy for joining from Hawaii on very little sleep after flying in last night. So certainly greatly appreciate you doing that for us. Everybody have a wonderful week and buckle up, actually when you listen to this, it'll be election day, I'm sure. But we're at the day before as we're recording this buckle up and if you haven't already, get out and vote. Take care, everybody.