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Wow, we’re already three months into 2024? Time sure is flying.

And while everyone is focusing on the Federal Reserve and interest rate policy, there’s also another meaningful event this year.

I’m talking about the U.S. Presidential election.

As a financial advisor, you may have clients asking many questions regarding this likely contentious election. And how it will impact their finances.

But while most media pundits make their case for which candidate is “better”, what they may do, and how it will impact the economy, I’m going to stay politically agnostic.

Meaning – let’s not focus on the politics and party pandering and instead on the economics that will be inherited by the victor.

I believe this is more important so that you have some context to share while forming your own conclusions.

So, let’s get to it.

It’s probably best to cover this topic first.

“How do stocks do during elections before and after?”

Well, over the last nearly 100 years (since 1926), there have been six waves of Republicans in power and six waves of Democrats.

And regardless of who was in power – according to Morningstar1 – the stock market’s cumulative returns compounded higher.

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Now, of course, politics influence economics and markets – either to the upside or downside. But for the most part, historically speaking, markets kept climbing.

One thing both parties had in common was increasing deficits – especially since the 1970s once the U.S. abandoned the gold standard.

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Remember, increased deficits are stimulating as it’s the government spending (injecting) more than it taxes (sucks in). The evidence shows us this has helped fuel markets higher.

And regardless of who’s in the office, I believe this trend will persist.

Unemployment: Mixed Signals

The U.S. labor market has been cyclically tight since the pandemic ended as a huge amount of individuals retired earlier than expected2 (some excess of 2.7 million) and an anemic labor force participation rate (fewer individuals looking for work).

This helped push the unemployment rate to 3.4% in April 2023.

But since then - even with robust non-farm employment data – the labor market appears to be softening.

For simplicity, let’s look at the growth rate of temporary-help services (temp-roles), full-time, and part-time jobs since January 2023 (indexed at 100). It appears weakness is building as temporary employment is sinking nearly 10% in 13 months and full-time employment growth is also dissipating.

·         In fact, the only one increasing is part-time employment.

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Meanwhile – according to the Challenger Job Cut survey3 – US-based employers announced plans to cut 84,638 jobs in February 2024, the most in eleven months.

·         It is also the highest February total for the month since 2009.

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All this has helped push the unemployment rate higher to 3.9% - the highest level in two years.

So, although the U.S. employment data is a mix between robust and softening, it’s something the new President may have to deal with eventually if the trend weakens.

Inflation Staying Sticky?

Inflation is the sinister thing that plagues all consumers as their cost of living rises. Or said another way, everything they buy keeps getting more expensive each year.

After the pandemic, inflation was a big problem courtesy of a combination of COVID-supply shocks, an extremely accommodating Fed, and an overly thrifty government.

Now, although inflation has cooled in year-over-year terms, it remains historically elevated and rising.

·        The so-called core consumer price index, which excludes food and energy costs, advanced 3.8%.

The issue? Well, the core CPI went up by 0.4% month-over-month. This is faster than the 0.3% rise in December 2023 and the same as the 0.4% increase in January - Marking the biggest increase in core prices since April 2023 - challenging the decreasing inflation trend in the US economy.

·         In fact, The core CPI over the past three months rose an annualized 4.2% - the most since June 2023.

Getting prices under control will likely be a big talking point in this election.

One that may last years.

Ever-Mounting Consumer Debt

A big concern has been the sharp increase in consumer debt over the last four years as households leaned on credit more than before in the face of higher prices and weaker real wages (inflation-adjusted).

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Most troubling has been the rapid rise in credit card debt.

See, according to a recent4 Wells Fargo report – U.S. revolving debt (like credit cards) has surged over the last two years.

And to give you some context: in the previous cycle (2008-2020), revolving credit increased by $80 billion, roughly $6.7 billion annually.

But in the current cycle, consumer credit surged by $187 billion in less than four years, averaging about $46.8 billion each year.

Simply put, credit card debt has escalated seven times quicker in this cycle compared to the prior one.

It’s important to note – as I’ve detailed recently (read here) – that credit card and auto loan delinquencies are rising rapidly, as well as average credit carry balances being compounded by record-high interest rates.

Making matters worse, according to a yearly survey by Bankrate5, more than a third of American adults—36%—have more credit card debt than emergency savings. This percentage is the highest it's ever been in over ten years of polling.

·         It’s especially bad for Millennials (46%) and Gen-X (47%).

So, whoever comes into office this year may face some worsening credit conditions in the coming years that could create financial system instability.

Wrapping It Up

As we try and navigate through 2024, the incoming administration will likely face a complex economic and market landscape.

And as a financial advisor, it's essential to stay informed and active in addressing the issues ahead by giving clients context to steer them through any challenges.

It’s likely economic growth will revert lower as the momentum fades, inflation stays stubborn, and increasing consumer debt must be serviced (remember, more debt means more income must go toward debt payments).

Whoever comes into the office will likely have their hands full.

As always, just some food for thought.  









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