Election Year

Happy fall! It was a busy summer, and it’s nice to feel like we are back in the swing of things as kids go back to school. Casey and Jamieson are starting to feel their age, as they are the only team members with kiddos. Casey’s daughter Finola is entering her freshman year at Gonzaga and his son Thatcher is starting his freshman year of high school. Jamieson’s son Winston is entering the seventh grade and is finally off crutches after nine weeks with a stress fracture in his hip. He is excited to get back on the golf course. 

The election will create short-term volatility.

We last rebalanced our portfolios in June and felt that these trades worked out well. However, as we get closer to the election, we are alert for disruption. Our research shows that the period from mid-September through early November is likely to be more volatile than usual, with increased vulnerability to sharp downside moves. 

It seems that every political cycle is becoming more contentious and a bit uglier. It reminds us of an old Will Rogers quote: “If all politicians fished instead of spoke publicly, we would be at peace with the world.”

This year’s election has an elevated uncertainty surrounding it and adds additional complexity that is difficult to handicap. The expectation that this will be a close race means many businesses are delaying major capital allocation and business-defining investments until after the election. 

We have also seen some changes in market temperament. We had been on quite a run through July 16th of this year and then hit a volatile stretch that led to a V-shaped recovery. This is a telltale sign of a market that is more susceptible to headline-induced pull-backs, which usually is accompanied by uncertainty. 

We still stand behind our earlier comments that the market doesn’t care who is elected, but just wants to know who it is. However, we expect volatility in the short-term. As we always preach, investments are long-term, and this short-term volatility hasn’t changed our views of the market medium-term. We are still cautiously optimistic. 

That all being said, we have made the following adjustments:

• We reduced our equity overweight by 3% to just a 1% overweight. 

• We are moving closer to benchmark weighting across US, developed markets, and emerging markets stocks. 

• We are still maintaining a growth bias in our stock portfolios, but tactically pruned exposure as we hit this volatile period. 

• We are adjusting our fixed-income portion of the portfolio after a sharp fall in interest rates and in preparation of a transition to Fed easing interest rates. 

We’re anticipating interest rate cuts

One of the bright spots in this market has been the bond market. As a reminder, generally when interest rates go up, bond prices go down. Generally when interest rates go down, bond prices go up. 

The market is now pricing in 75 basis points to a full 1% drop-in rates by the end of the year, with more to follow in 2025. As we have joked, Jerome Powell has not returned our calls. But employment data and decreasing inflation lead us to believe interest rate cuts are on the horizon.

Our friends at Blackrock put together this chart on historical bond performance after the Fed cuts rates for the first time:

Housekeeping items

Here are a few housekeeping items as we start to round the corner to the end of the year.

• Now is a good time to check your 401(k) or workplace retirement contributions to make sure you are on track to max out by the end of the year. 

• With market volatility expected, in the next month or so consider making any IRA, Roth IRA, Backdoor Roth contributions, or Roth conversions. Let us know if you would like to have a further discussion on this.  

• National Public Data, a company that specializes in collecting public records, had a massive data breach in April that is just coming to light. Nearly 3 billion social security numbers and other identifying information have since been for sale on the dark web. To protect yourself, freeze your credit with the three bureaus: Experian, Equifax, and Transunion. It is free and fast to freeze and unfreeze your records. Read more here.

• Now’s the time to make any year-end gifts of stock or from your IRAs. Let us know if you would like to chat about your strategy for any year-end gifts. 

We hope your start to September is going well and that you and your families are healthy. We appreciate your continued support. We would not be here without you!