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Potential Post-Election Policy Shifts: Understanding the Implications
August 16, 2024
Explore our Investment Strategy & Research (IS&R) team’s analysis of the economic landscape for the third quarter of 2024. In this summary, we highlight key trends, including inflation shifts, market reactions and portfolio considerations. For a more in-depth dive, access our full Insight report here.
As illustrated in Figure 1, inflation has significantly decreased from its peak of over 9% in June 2022, now standing around 3.0%. This decline aligns with historical patterns, where inflation cycles typically take 24 months to peak and then recede. The Federal Reserve is likely to continue easing monetary policy, especially if disinflationary pressures persist and the labor market cools further.
Figure 2 shows that U.S. household net worth, as a percentage of GDP, has surged to nearly 6x, a level not seen since the 1950s. This increase reflects the robust economic growth driven by factors such as lower labor and debt costs, fewer regulations, and technological advances. However, the benefits of this growth have not been evenly distributed. Lower-income households continue to face significant challenges, particularly with inflation eroding their purchasing power and increasing their reliance on credit. As such, we believe it is important to monitor rising credit card delinquencies, as well as other forms of credit, to determine the sustainability of consumer spending patterns.
We believe holding defensive equities, especially this late in the cycle, is sensible due to their durable business models and strong cash flows. International equities offer potential for wider returns despite near-term risks. Additionally, exposure to private markets, such as private credit and infrastructure, allows investors to capitalize on market dislocations and long-term trends, while broadening portfolio diversification.
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Glossary of Terms Used in this Issue
Consumer Price Index (CPI): A key indicator of inflation or deflation in the economy.
Disinflation: A reduction in the rate of inflation, meaning prices are still increasing but at a slower rate than before.
Electoral College: The body of electors established by the United States Constitution that formally elects the President and Vice President of the United States.
Federal Reserve (Fed): The central banking system of the United States, responsible for setting monetary policy, including interest rates and regulating banks.
Gross domestic product (GDP): It measures the monetary value of final goods and services produced in a country in a given period of time.
Interest Rates: The percentage charged on borrowed money or paid on investments. Set by the Federal Reserve, interest rates influence inflation and economic growth.
Leading Economic Indicators: Key economic metrics that typically change before the broader economy shifts, providing insights into potential future economic activity.
Magnificent Seven: Stocks that include Amazon, Alphabet, Apple, Meta, Microsoft, Nvidia and Tesla.
Market Capitalization: The total market value of a company’s outstanding shares of stock, calculated by multiplying the current share price by the total number of outstanding shares.
Monetary Policy: The process by which the Federal Reserve manages the supply of money and interest rates to achieve macroeconomic objectives, such as controlling inflation, managing employment levels and ensuring economic stability.
Services Inflation: The rate at which prices for services—such as healthcare, education, and housing—rise over time.
Unemployment Rate: The percentage of the labor force that is jobless and actively seeking employment.
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