The Transcript Editor's Commentary

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-Scott

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A Pleasant Purgatory

It’s the middle of earnings season but the environment still feels like it’s holding in a purgatory of sorts. Since Labor Day, we’ve been caught between the start of the Fed’s easing cycle and the Presidential election, which will finally end next week.

The purgatory has been pleasant though – overall, the economy remains resilient. Consumer spending growth is adequate and employment is strong. Transunion reported that household finances are “healthy” and consumer delinquencies are low. 

Companies are also optimistic about future prospects. CBRE noted that “the Fed's start of a new monetary easing cycle has recently heightened investor enthusiasm.” Regional bank, Zion, said, “We believe customer optimism improved in light of the recent reduction in benchmark interest.”

The optimism does hinge on a continuation of lower rates though. Leon Topalian, CEO of Nucor, voiced a sentiment similar to the one we wrote last week. He said, “The Federal Reserve’s recent actions are a good start, but it will likely take more time, more rate relief, and looser lending conditions” to spark more demand.

We’ll get an updated indication of the Fed’s mindset next Thursday. For now, it appears that the positive effects of rate cuts have been neutralized by higher long-term rates. It’s not clear how this will factor into the FOMC’s calculus on additional action.

Elections Finally Over

The election will finally be over next week. This week we published a quote from Larry Fink that he’s tired of the election and that “the reality is over time, it doesn't matter.” 

I’m sure that almost everyone shares Fink’s election fatigue at this point. However, I can’t say that I agree with his assessment that this election or any presidential election “doesn’t matter.”

Whoever wins the presidency matters a lot for capital markets both in the short and long term. Trump or Harris would each bring their own flavors of tax, regulatory, and monetary policy, and these policies could help shape the direction of the economy for many years.

For at least the last 100 years, U.S. government policy (including Federal Reserve policy) has been, perhaps, the single most important driver of economic cycles. Major economic turning points have often coincided with changes in Presidential power. FDR (1933), Eisenhower (1953), Nixon (1969), Reagan (1981), Clinton (1993), and Obama (2009) are just six examples of Presidents who brought structural economic shifts with them into office.