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Fall 2024 Post-Election Webinar

Gauging the market impact of election results.

Key takeaways

  • The U.S. economy appears on track to produce annual growth above 2% in 2024.

  • The strength of the economy continues to buoy the stock market while contributing to rising long-term interest rates.

  • At the same time, the Fed has initiated what is expected to be a series of interest rate cuts.

Despite lingering inflation and higher interest rates, the economy produced second and third quarter annualized Gross Domestic Product (GDP) growth of 3.0% and 2.8%, respectively.1 Key to this growth has been consumer spending, driven in part by healthy wage gains that now outpace the nation’s inflation rate. The economy appears poised for another year of growth above 2%.

Chart depicts U.S. annualized quarterly gross domestic product, or GDP, which is a measure of total economic output from 2021 through October 30, 2024.

Source: U.S. Bureau of Economic Analysis, “Real Gross Domestic Product and Related Measures: Percent Change from Preceding Period,” October 30, 2024.

Consumers driving economic expansion

According to the U.S. Bureau of Economic Analysis, increases in consumer spending, exports, federal government spending and non-residential fixed investment were the key factors driving third quarter growth.

Persistently strong consumer spending is one of the major stories of the economy’s steady growth. Personal Consumption Expenditures, a measure of consumer activity, continue to increase, and represents by far the largest contributor to GDP.2

Source: U.S. Bureau of Economic Analysis. Consumer Spending represents Personal Consumption Expenditures. Private investment includes business expenditures. Government includes federal, state and local government spending. As of September 30, 2024.

How will the pace of economic growth influence monetary policy?

The economy’s strength is a major consideration as the Federal Reserve (Fed) calibrates monetary policy. In September, the Fed cut the federal funds target rate (the rate charged by financial institutions to lend funds overnight to each other), for the first time in four years. Another rate cut occurred in November, with markets anticipating a third cut in December.3

However, based on minutes of the Fed’s November 2024 meeting, it was noted that Fed policymakers deem “it appropriate to reduce policy restraint (interest rates) gradually.”4 That could temper expectations around the pace of rate cuts in 2025.

The Fed’s rate cuts are designed to impact the broader economy. Fed Chair Jerome Powell stated that “As inflation has declined and the labor market has cooled, the upside risks to inflation have diminished and the downside risks to employment have increased.”5 However to this point, the jobs market appears to be holding its own, with the unemployment rate just above 4% and new weekly jobless claims considered to be at manageable levels.6

“Capital markets are pricing in expectations of better economic growth,” says Rob Haworth, senior investment strategy director for U.S. Bank Asset Management. “We’re seeing that in continued upward movement for stocks and rising 10-year Treasury bond yields.” Although the Fed cut short-term rates, 10-year Treasury yields moved up from a low of 3.63% in mid-September (when the Fed began cutting rates) to a peak of 4.44% less than two months later.7 Yields have remained in a trading range since. Rates moved up on other long-term bonds as well, complicating matters for businesses, particularly as it relates to business capital investment. Nevertheless, corporate capital expenditures remain solid to this point.

 

Can the economy stay on track?

“Modest, steady economic activity continues to be the path we appear to be on at this point, with no serious recession risk,” says Haworth. He believes ongoing labor market strength is the key variable that could impact consumers. “A sudden jump in layoffs would be a negative signal, but we’re not seeing that,” says Haworth. “Employers are hanging on to workers, particularly in areas where they struggled to fill positions before.” says Haworth.

“Modest, steady economic activity continues to be the path we appear to be on at this point, with no serious recession risk,” says Rob Haworth, senior investment strategy director for U.S. Bank Asset Management.

Implications for investors

The economy’s ongoing strength helped corporations meet or exceed earnings expectations, fueling further stock market gains. At the end of November, the S&P 500 is on pace to achieve 25%+ returns for the second consecutive year.8

In the current environment, investors may wish to consider a modest overweight of equities and a modest underweight of fixed income, with a neutral position in real assets. Haworth says this reflects an economic environment that, in the near term, appears to put equities in a position to outperform fixed income.

Consider reviewing your current portfolio with your wealth management professional to determine if it’s consistent with your long-term goals and positioned to meet your needs in today’s market and economic environment.

Note: Diversification and asset allocation do not guarantee returns or protect against losses. The Standard & Poor’s 500 Index (S&P 500) consists of 500 widely traded stocks that are considered to represent the performance of the U.S. stock market in general. The S&P 500 is an unmanaged index of stocks. It is not possible to invest directly in the index. Past performance is no guarantee of future results.

Frequently asked questions

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Disclosures

  1. U.S. Bureau of Economic Analysis, “Real Gross Domestic Product and Related Measures: Percent Change from Preceding Period,” October 30, 2024.

  2. U.S. Bureau of Economic Analysis, Contributions to Percent Change in Real Gross Domestic Product, Nov. 27, 2024.

  3. CME Group, FedWatch, as of November 29, 2024. Based on actions of interest rate traders, FedWatch estimates a 66% chance of a 0.25% Fed rate cut at its December 17-18, 2024 meeting.

  4. Federal Reserve Board of Governors, “Minutes of the Federal Open Market Committee,” November 6-7, 2024.

  5. Board of Governors of the Federal Reserve, “Summary of Economic Projections,” September 18, 2024.

  6. U.S. Bureau of Labor Statistics, U.S. Department of Labor.

  7. Source: U.S. Department of the Treasury, Daily Treasury Par Yield Curve Rates.

  8. S&P Dow Jones Indices.

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