Weekly Reading Recommendations
Happy Birthday to the Equity Bull Market (Callie Cox)
Emergency Savings, How Much? (Fidelity)
Hurricanes and Boeing Strike will make Economic Data Messy (Axios) —————————————————————————————————————————
This Week's Highlight Article
The Market is a Voting Machine: 2024 Election
"In the short run, the market is a voting machine, but in the long run, it is a weighing machine"
Benjamin Graham, Warren Buffet’s mentor and author of the seminal work Security Analysis, is paraphrased by Buffet with that often-used quote.
Elections capture the immediate mood and opinions of the electorate, with popularity influencing outcomes just as short-term sentiment influences market moves. However, politicians’ effectiveness is measured over time as the impact of their policies is assessed, much like the market better reflects changes in fundamentals and valuations over time.
With people voting in at least 76 countries in 2024, it looks to be the biggest election year in history, affecting 4.4 billion people, or 60% of the global population. Attention will especially be focused on the US, where the vote for president is expected to again be close. The anticipation building up to elections often brings with it questions about how financial markets will respond.
As highlighted throughout this week's highlight article from Fund Evaluation Group (FEG), making short-term asset allocation decisions on possibly policy changes that may follow an election is less than prudent, and we do not advocate portfolio changes based on potential election outcomes.
No party has a monopoly on the success of the U.S. economy and markets. Investors should expect the change in Federal Reserve policies, the direction of inflation, labor market strength, economic growth and earnings to be far more influential on market returns than the results of an election. Nevertheless, elections set the fundamental tone of policy that dictates the playing field in which commerce and investment occur. Fortunately, American ingenuity has historically found a way to overcome bad policies.
We hope you enjoy the insightful presentation in link below from FEG and find the information balanced and beneficial from a high level view of elections and investments.
Charts that matter
Federal Reserve Initiates Rate Cuts
After 14 months of being on "pause" the Fed moved to cut interest rates by 0.5% in September as they move towards an incrementally less restrictive posture aimed at supporting aggregate demand. For the remainder of the year, the FOMC has penciled in an additional 50 bps reduction to the policy rate and 100 bps of easing throughout 2025.
If we equal-weight indexes by giving each constituent company the same percentage regardless of size, it becomes obvious how much a few giant US companies are changing perceptions. What comes as a surprise to many is that on an equal-weighted basis, the total return on MSCI’s index for Europe has actually outperformed its US Index since the beginning of 2023.
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