sick with ryas
“The post-election outcome is highly uncertain, not only in terms of who will win, but also in terms of what they will try to implement and whether they have the legislative power to do so. More volatility is inevitable in the coming months. If If you think none of this sounds reassuring, you'd be right.
The elections referred to are the presidential elections currently taking place in the United States.
The quote is from Chris Giles, writing in the Financial time.
Mr Giles concludes:
“It's not surprising that financial markets are nervous.”
The image of what is happening?
“Global stock markets have just enjoyed their strongest week since November as investors put aside recession and yen exchange rate concerns of early August. Very little of substance changed to bring about the recovery or, indeed, the slump in early August.” Aside from weak summer markets, what this shows is deep uncertainty about the post-pandemic global economy and future prospects.”
This is what I have tried to portray in my recent post, “Market Volatility: What's Going On?”.
I write in this post.
“The choice of president is going to have a substantial impact on which economic policies will be emphasized and which will not.”
“The response from the investment community is going to be very important in terms of where the markets will go.”
“It is necessary to understand the responses of the investment community as the presidential campaign progresses towards the elections.”
Please note that nothing is said here about the economic policies of any of the candidates or who might win the election.
The concern is the uncertainty of the outcome of the elections and the uncertainty of the results of the proposals of any of the candidates.
The outstanding risks at the present time constitute the crucial current question.
And it is this question that appears to be taking center stage in the minds of the investment community.
The question that has dominated the minds of the investment community has been whether or not the Federal Reserve would lower its official interest rate.
All summer long we've been debating whether or not the Federal Reserve would cut its policy rate in the near future by twenty-five basis points… once… twice… three times… or many times, never.
Recent debate has also included the possibility that the Fed's move could be as much as fifty basis points.
The investment community is still debating these possible outcomes, but since the conclusion of the Republican political convention on July 18 and the announcement that President Joe Biden would not seek re-election, uncertainty about the outcome of the presidential election and what that election would mean in terms of government policies has taken center stage in discussions.
As I noted in my previously cited post, stock market volatility has been relatively substantial.
And, as Mr. Giles reports in his article,
“Very little of substance changed to bring about the recovery or, indeed, the collapse…” that took place this summer.
And what Mr. Giles means by “very little of substance changed…” is that there was very little statistical or economic news that generated swings of the size that occurred in the market.
It seems that this is where people are starting to look for explanations. They are now looking at the uncertainty surrounding the upcoming elections and who will be elected.
And the discussion grows.
I think this uncertainty will dominate most of the rest of this year.
The Federal Reserve could lower its policy rate at the September meeting of the Federal Open Market Committee.
The Fed can reduce the policy rate by 50 basis points, not 25 basis points.
Let me say here that I continue to believe that the Fed needs to be cautious about changing its policy rate so close to a presidential election. If the Fed lowers the policy rate…Chairman Powell and the rest of the Fed leadership will receive a lot of criticism from one of the presidential candidates. In fact, that candidate could argue that the candidate’s defeat was due solely to the Fed’s political action in lowering the rate just before the election was held.
There is therefore a great deal of uncertainty surrounding the events that will take place in the coming months. This growing uncertainty could lead to a much more volatile stock market, with significant swings up and down.
Investors should take this possibility into account when thinking about stock market performance in the near future.