Post Election Market & Economic Considerations

Post-Election Clarity

• The US stock market has had a solid gain since last week’s election. 

• The election outcome provided clarity to build on the underlying strength of the economy.  Leading up to last week’s election, we had strong corporate earnings and an easing inflationary path.  Meanwhile, forward looking company and sector returns will be more dependent on market dynamics than on government policy.  For example, during Trump’s first term as president when he supported US oil production policy, the S&P 500 Energy index was down 40% while the S&P 500 Clean Energy index was up 275%.^[i]
• The Trump Presidency and a Republican majority in congress means that we should expect lower taxes and lighter government regulation while the true winners remain to be determined.

Tax policy

• Likely, the highest level of the personal income rate will go down or at least remain the same at 37%. 
• There should also be an extension of the Tax Cuts and Jobs Act provisions set to expire in 2025.  This will keep the estate tax exclusion at about $28M per married couple.
• Concerns remain on the growing national debt as the Trump administration aims to add over $7T to an already massive number.  The debt remains the 800 lb. gorilla in the room to be addressed.

Broad Market Recovery

• The stock market returns are becoming less concentrated in the top names (Mag 7) and positive returns have expanded to a broader base.  This is a good sign because it places less risk in the few names and allows more participation in the rally.
• The bond market is moving quickly as well.  Longer term rates have risen fast with the 10-year Treasury yield at 4.42% compared to 3.60% before the first rate cut on September 18^th.
• The Fed Funds rate was cut by .25% last week to a range of 4.5 – 4.75%.  The rate cut is a positive sign that inflation is stabilizing, allowing the Federal Reserve to cut rates to support economic growth.  Investors are now questioning another rate cut in December given an inflationary agenda.

Interest Rate Comparison – Beginning of Year to Now

Volatility

• Rate-cutting cycles often come with increased market volatility.  Recommendation: take advantage of this volatility as we confirm and update the strategy of your investment portfolio.  The addition of small and mid-cap stocks presents good value to investors looking for growth.  These sectors are expected to perform well with a lower cost of financing in a lower short-term interest rate environment.
• The Trump administration is expected to be inflationary, and the impact is that we expect the Federal Reserve to keep the overnight Fed Funds interest rates higher for longer.  Still, the recent move higher in longer term interest rates and the steepening of the yield curve is a good opportunity to extend the maturity of bond investments to lock in higher income, especially as longer-term interest rates have increased faster than the short-term rates.
• The US Dollar strength relative to other major currencies is expected to continue as foreign tariffs are implemented and foreign interest rates are expected to be lower than those in the US.  The implication of this for the US investor is that interest rates remain higher and offer an opportunity to make more income in bond investments.  Meanwhile foreign investments in the US are more expensive because of the currency differential.  The bottom line is that we continue to favor investments in the US over international, and we are encouraged by the ability to lock in higher fixed income streams for longer periods of time with bonds.

 Recommendation

• We recommend taking advantage of the expected market volatility to add positions in the US stock market.  The small and mid-cap sectors are attractive because they are expected to grow more than their large-cap peers. 
• The rise in longer-term rates and fall in short-term rates known as a steepening interest rate curve presents a great opportunity to invest in medium and long-term quality bonds at attractive income yields.  These higher interest rates allow investors to comfortably lock in a fixed income stream above the inflation rate. 
• There is also a clear investment opportunity in certain real estate sectors like income producing apartments that presents the potential for consistent double-digit income.

[1] JP Morgan Asset Management Election Insights, 11/6/2024

The information presented in this newsletter is the opinion of Alpha Capital Family Office, LLC and does not reflect the view of any other person or entity.  The information provided is believed to be from reliable sources but no liability is accepted for any inaccuracies.  This is for information purposes and should not be construed as an investment recommendation.  Past performance is no guarantee of future performance.  Alpha Capital Family Office, LLC is an investment adviser registered with the U.S. Securities and Exchange Commission.