Election season is in full swing. The two presidential candidates have incredibly different personalities and beliefs that could significantly impact investors and companies. Will Kamala Harris increase taxes on the wealthy and corporations? Will Donald Trump defund the Inflation Reduction Act (IRA)? Will the U.S. aid Ukraine and Israel? Will the U.S. continue to defend the Red Sea shipping lanes and the South China Sea navigation?
These uncertainties may lead to market volatility, especially as we approach November 5th. Markets dislike uncertainty, and this election is bringing a lot of it. However, it's important to remember that historically, U.S. stocks have almost always ended higher after a president's term than at the beginning, regardless of the president's party affiliation.
Federal Reserve Bank (Fed) Poised to Raise Rates
During two days of congressional testimony, Federal Reserve Chair Jerome Powell pivoted on interest rates. This shift might have a more lasting impact than the one that sparked a market rally at the end of last year.
The Federal Reserve Bank (Fed) has two mandates: 1) maximum employment and 2) price stability (inflation). The Fed's goal of 2% inflation hasn't been achieved; however, Powell believes a more significant employment issue is around the corner as the unemployment rate increased from 3.7% in January to 4.1% in May. Typically, we consider anything under 5% unemployment as full employment. While many economists feel that sub-5% unemployment is unhealthy, Powell's concern is that the unemployment rate is increasing faster. In the long term, people who enhance their job skills will not have employment issues. However, low-skilled employees could have problems finding meaningful employment.....never stop learning!
Market Update
Small company index IJR is playing catchup against the ultra-large cap stocks in the NASDAQ 100 (QQQ). IJR has been the market leader for three of the four last weeks. The surge is due to the Fed signaling lower interest rates.
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