The third quarter was upbeat for investors.  Stocks and bonds made gains, and the Federal Reserve lowered interest rates by a half-point at their most recent meeting.  Corporate profits, employment and inflation are all tracking nicely right now.  A summer of dramatic events finally confirmed who will headline the Democrat and Republican tickets in next month’s Presidential election.  Capital markets seemed to take it all in stride.  While there is always a possibility for a surprise, investors welcome the fourth quarter in an optimistic mood.

The September meeting of the Federal Open Market Committee (FOMC) brought the first interest rate reduction in four years.  By lowering rates a half percent, which was at the high end of expectations, the Federal Reserve is confident they are winning their battle against the inflationary pressures that have undermined consumers since the economy reopened after the covid pandemic.  Reports continue to indicate inflation is trending toward the Fed’s target level of around two percent.  The next meeting of the FOMC is scheduled for early November, at which time they are expected to provide additional monetary easing.  Fed Chair Jerome Powell commented that the committee’s focus has shifted from lowering inflation to supporting employment, which has shown some signs of softening this year.  The unemployment rate has inched up from 3.8 percent a year ago to 4.2 percent now, but it remains below the five percent level that is generally considered “full employment” for our economy.

Through direct ownership, pension plans and other retirement accounts, nearly all Americans have participation in the stock market.  Successful companies provide new jobs, rising wages and support for share prices that help us maintain and improve our standard of living.  The health of our economy is revealed by the profits of companies that operate in it, and corporate profits are doing fine right now.  According to FactSet Research, after-tax earnings for companies in the S&P 500 Index have shown year-over-year gains for five straight quarters, and analysts are forecasting growth of 15.1 percent for the upcoming calendar year 2025.  This year’s profit gains have helped to propel stock values to record highs.

Every Presidential election cycle brings the promise of change.  In practice, change is a struggle because there are so many moving parts that need to align in order to materially alter the direction of our big institutions.  In recent decades, the size and scope of our Federal government has grown, and that trend will likely continue under the next administration.  This election’s top billing goes to the contest between Kamala Harris and Donald Trump for President.  However, there are also 34 Senate seats and all 435 House seats up for grabs in a legislative branch that is nearly evenly divided between the two parties.  Perhaps one of the reasons capital markets can handle the political drama with relative calm is the likelihood that the economy will continue along its path regardless the election outcome in November.

As the new quarter gets underway, there is a development that could impact economic activity in the near-term.  The International Longshoremen’s Association, with 47,000 union members, has decided to go on strike, with the potential to disrupt cargo operations at ports along the east coast and gulf regions that currently handle approximately half of our nation’s imported goods.  Work stoppages at affected ports will require shipping to be halted or redirected to the west coast, depending upon the expected length of time it takes to resolve the strike.  Workers are demanding a 77 percent wage increase over the next six years, as well as curtailment of efforts to automate operations at the ports.  It is ironic that the substantial pay increases are being sought as a response to inflation, yet previous supply chain interruptions are partly to blame for rising prices.

We enter the homestretch for 2024 with markets in good shape.  While there are always things to be concerned about, the primary determinants of portfolio gains are interest rates and company earnings.  Those key variables are currently headed in the right direction for investors.  

Please contact us if you have any questions.  We hope you enjoy wonderful holidays with friends and family.