November 2, 2024 Market Update

AI concerns weighed heavily on stocks last week, with the Nasdaq tumbling by 2.8% and the S&P 500 declining by 1.9% on Thursday alone.  For the month of October, the returns of the four leading equity indexes were as follows: Dow -1.3%, S&P 500 -1%, Nasdaq -0.5%, and Russell 2000 -1.5%.

 October was also challenging for bonds, as concerns over persistent inflation and the potential for prolonged higher interest rates drove yields up across the board.  This pressure led the Bloomberg U.S. Aggregate Bond Index to decline by roughly 2.5% for the month.

With next week’s election on the horizon, investors are left wondering how the outcome will impact the markets.  For investors, the best outcome might be a divided government — where one party controls the White House while the other holds at least one chamber of Congress.

A divided government can be beneficial for markets because it reduces the likelihood of large-scale legislative changes, which limits economic disruption and promotes stability.  Without one party able to pass major spending or tax reforms easily, this setup often restrains the growth of the federal deficit, helping to control inflation.  Historically, markets have often performed well under these conditions, as the gridlock provides a buffer against dramatic policy shifts.

In contrast, control of both the White House and Congress by either party risks a resurgence in inflation due to greater deficit spending.  If that were to occur, the Federal Reserve could feel compelled to raise rates once again, which would put downward pressure on both stocks and bonds.

It’s important to remember that while elections tend to increase short-term market volatility due to the uncertainty surrounding policy outcomes, Mr. Market has successfully navigated through many political shifts.  Well-designed long-term investment strategies, like those used by The Milwaukee Company, remain effective over the long term, despite short-term political fluctuations.

That’s all for now.  Have a great weekend and invest wisely my friends.