The Ironwood Recap – Market Update – July 30, 2024

The preferred measure of inflation that the Fed uses has finally gotten to around 2.5%.  This isn’t quite the target stated by the Fed but it is pretty close and an argument could be made that it’s time to start lowering the headline interest rate.  Unfortunately, the economy continues to chug along at too fast of a clip, with Q2 GDP coming in at a 2.8% rate.  While normally that would be a good thing, it’s not what the Federal Reserve wants to see right now.  There continue to be too many open jobs with that number holding steady for a second month at 8.2 million as opposed to declining like we had hoped.  So while the lower inflation number makes an argument that the Fed should start lowering rates, I don’t believe it’s a very compelling argument.  There is still quite a bit of speculation that we will see a rate cut this year and we hope that is the case, but to us it looks like the pace of cuts over the next year or so will be slower than we would like.

 The twist in the election cycle with President Biden dropping out has made the election slightly more of a concern.  Before the twist, we had already seen the economic policy of both potential Presidents.  Neither set of policies was bad for corporate earnings overall.  Now it appears that the new contender will be Vice President Harris.  Unfortunately, we don’t know much about where Vice President Harris stands as most of her previous actions were in support of President Biden’s policies.  The good news is that since she was able to skip the primaries, she isn’t tied to any promises she made just to win the nomination.  We believe that this will allow her to be more moderate in her economic policies, with fewer promises to uphold.  At the end of the day, remember that both Republican and Democratic donors like to be rich and it is to the benefit of both parties to keep them that way.

 From a markets perspective, we are still viewing the Presidential election as far less significant than Fed policy.  If something odd happens, we will of course be watching.   Overall we remain positive with the expected lowering of interest rates in the next year or two and statistically, an election year tends to be positive for the stock market as well.  PE ratios remain low except for a few expensive stocks and there is quite a bit of room for the rest of the market to grow before it gets overpriced.  As always, if we see it get to where we think it is expensive, we will pare back, and if we think there is a buying opportunity, we will look for bargains.

 Enjoy the rest of your summer!