With two weeks until the election, and a host of conflicting polls and divergent opinions on the state of the economy – I still have no idea who will win this year. I say this in the context of some prognostications made by two hedge fund billionaires: Stanley Druckenmiller and Dan Loeb. Both have opined that the rally on Wall Street underscores a growing belief that former President Donald Trump will win on Nov. 5. Loeb went so far as to predict that Republicans could establish a majority in the Senate. Far be it for me to argue with legends of the investing world who have long had their ears to the ground on investing, politics and geopolitical affairs. That said, there are other plausible and non-political explanations for stocks’ recent run. Take last Friday, for instance, when the Dow Jones Industrial Average closed at a record. That day, the Nasdaq Composite rallied and came within 1% of its all-time high. The S & P 500 has posted multiple record highs in 2024, and I suspect it’s not just the result of partisan politics. A resilient economy The economy remains resilient in the face of political uncertainties, geopolitical risk and a somewhat uncertain pace of interest rate reductions from the Federal Reserve. The Atlanta Fed’s GDPNow tool pegs fourth quarter gross domestic product growth at an annual rate of 3.4%. Further, retail sales for September climbed 0.4%, topping the Dow Jones forecast of 0.3%. Meanwhile, jobless claims for the week ending Oct. 12 came in at 241,000, reflecting a decline from the week earlier. Corporate earnings are also supporting valuations, which doesn’t hurt in a market that some claim has gotten pricey relative to profits. Taiwan Semiconductor Manufacturing reported solid quarterly results . Nvidia hit another record high on Tuesday before tumbling. The semiconductors sub industry is up nearly 90% in 2024, trouncing the S & P 500 and the Nasdaq Composite in that period. Inflation also continues to moderate now both at home and abroad. Last week, the European Central Bank cut interest rates for the third time this year. Eurozone inflation has also declined below the ECB’s 2% target. The U.S. remains the best performing equity market in the world, with the S & P 500 and the Nasdaq both up more than 22% in 2024. The message from the markets While it is possible that Wall Street is looking toward a Trump victory – which investors tend to view as a business-friendly development – that is not a universally held view among economists. They think that Trump’s proposed tariffs and planned mass deportation of undocumented migrants would stoke inflation and weaken economic growth. I’m not making the case that Democratic candidate and Vice President Kamala Harris would be better for business or for the financial markets, given the promise of higher taxes and greater regulations. However, I don’t yet believe that Wall Street and Pennsylvania Avenue have intersected just yet. Indeed, if the stock market is anticipating a Trump victory, what might the bond market and gold market be telling us, assuming they expect the same outcome? Since the Fed cut interest rates by a half point in September, the yield on the 10-year Treasury note has climbed. It briefly cracked 4.2% on Tuesday. Meanwhile, gold has been hitting a series of fresh highs as of late. Are those markets telling us a Trump victory would lead to higher inflation and bigger fiscal deficits? Those betting on a Trump win would be loath to say so if they follow the messages of multiple markets. No matter what one’s political leanings, markets are influenced by multiple variables. The least of these is who happens to be president in any given four-year period. That’s what makes this horse race unique and so hard to call. It also makes it very difficult to ascribe market behavior to one lone, albeit important factor. It might be better to make a political bet on the markets after Nov. 5 and not before. — CNBC contributor Ron Insana is CEO of iFi.AI, an artificial intelligence fintech firm.
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