Quick Bites – Politics and Market Gyrations

For the first time, Kamala Harris, and her new Vice President (VP) pick Tim Walz are at shorter odds on betting sites than Trump and JD Vance. But who knows if the Kamala honeymoon will last?

Nov 5 is still a while away, and as we’ve already seen this election season is full of surprises. Sad to see that Taylor Swift is only at 501 to 1 odd!

Source: Sportsbet

 It is Interesting to note that the US share market gyrations over recent weeks seem to have had a strong correlation with the Republican Party’s (the GOP or “grand old party”) chances of winning. Perhaps the market was anticipating that a Trump victory would be a positive for the market because he would be expected to lower corporate taxes and free up regulation.

As shown in the chart below, the GOP’s odds to win the Presidency (Trump) made its most recent low back on 19 April, and that was the same day that the SPY (S&P 500 index) bottomed. From there, the two traded higher all the way until 16 July, when both hit their 2024 peaks. Since then, the two have been trending lower, and as of writing, the GOP’s odds to win dipped back below 50%. We will continue to monitor the moves in these two to see if they keep tracking each other or eventually diverge.

In the meantime, markets have been gyrating influenced by competing narratives of the US labour market. First investors latched onto a higher-than-expected unemployment rate of 4.3% to send the market lower, but then rebounded on lower weekly jobless claims figures to produce a strong equity rally. 

What data to take notice of? We suggest that despite the unemployment rate triggering the Sahm rule (which says a 0.5% uptick in the unemployment rate within 12 months is usually enough to mean recession ahead), there are few signs that would confirm the feared hard landing. Initial jobless claims have risen, but they are only a bit higher than they were this time last year.

The Fed meets again in about a month’s time. They will likely cut rates in September by 25bps and follow that up with further cuts if needed. So now, we watch and wait, and exercise patience. 

Source: Bespoke Investment Group