Presidential Election is in Full Swing

 

presidential election 2016As July drew to a close the commerce department released the second quarter economic report with a disappointing 1.2% GDP annual growth rate, adjusted for inflation and seasonal impact.[1]  Consumer spending, which represents 2/3rd of the GDP, remained strong expanding at a rate of 4.2%, but it was offset by a reduction in business investment and a decline in government spending.  Economists anticipate that second quarter business revenues and profits will decline for the fourth straight quarter.

It came as no surprise that the Federal Reserve Board declined to raise rates in the July meeting and Federal Reserve officials released conflicting reports at the end of July.  Federal Reserve Bank of Dallas President Robert Kaplan said the Fed has to be cautious about raising rates when growth is sluggish, but San Francisco Fed President John Williams on the same day said underlying figures were encouraging and “we’ll be raising rates, not lowering them, over the next several years.”  He did not offer any specific timing however.[2]  Eyes will now be on the September Fed meeting as the next possible date to raise short term interest rates.  In our opinion, the likelihood of a rate increase before the presidential election is slim, but we could be wrong.  The stock market rally in July seems to indicate that investors believe an interest rate increase is not imminent.

Following BREXIT and the market decline at the end of June, the Dow reached a new all-time high in the first half of July.  In the last two weeks of the month the benchmark index traded in a very narrow range and closed the month about 1% off its high.  U. S. Treasuries remained strong and gold continued its rally.  There is technical data to support a bullish outlook from here, but a pull-back in the short term is likely given the fast ride up in early July.

Following the political conventions in July, the Presidential Election is now in full swing.  There are stark differences between the candidates and about the only thing they have in common is their lack of favorability among voters.  There are very critical issues at stake including health care policy, Social Security, immigration policy, terrorism and national security, environmental policy and the character of the Supreme Court, but the election may come down to “it’s the economy, stupid”.  James Carville coined that phrase in the 1992 Clinton election.  Americans historically vote with their pocketbooks and if the economy is not on track, economic policy dominates the election.  With several major pollsters showing that 70% of likely voters believe America is going in the wrong direction, the economy could determine the outcome this year.  Watch what the candidates propose to do to fire up this economy. The economic and monetary policy of the next administration will impact the stock market for the next several years.

[1] http://www.wsj.com/articles/u-s-economy-grew-at-a-disappointing-1-2-in-2nd-quarter-1469795649?mod=djemalertNEWS
[2] Ibid

Written by Connie C. Guelich, CFP, AEP, CLU, ChFC.  This represents our view at the time of this writing and is subject to change.  This is not intended to be personal investment advice.   If you would like to discuss your own account, please don’t hesitate to call us.  We are here to help and welcome your call.

 

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