Post Election Rebalance
Happy November! We can’t believe the end of the year is in our sights. Now that the election is over, we are relieved that the nonstop barrage of political ads and text messages has finally stopped.
We last reached out in late September to discuss our rebalance and the upcoming election. As a reminder, we said that our rebalance had reduced our risk levels incrementally to prepare for the volatility that tends to happen ahead of elections.
The end of the election brings clarity… and investment
With the election now behind us, market participants and economic actors can move forward with renewed clarity.
Now, we see pent-up business activity from companies and decisionmakers who had previously postponed investing capital until the election was decided. That capital will most likely be released into the markets, potentially providing a tailwind for risk assets as we enter the historically favorable November-December period.
The economy also continues to demonstrate impressive resilience, illustrated by a recent turnaround trend of positive economic surprises and robust consumer spending data. Yet we also see signs of sufficient economic moderation in areas like job openings, quit rates, and wage growth to give us confidence that inflation pressures remain contained.
We think that this strong but not overheating economic environment should embolden the Federal Reserve to proceed according to plan with additional rate cuts.
Our friends at Blackrock produced this graph on pent-up business activity.
We’re rebalancing for the new economic picture
With the above as a backdrop, we are rebalancing our models with the following key takeaways:
Increase our stock exposure in each model by 3% to a 4% overweight. We are seeking to ride a potential post-election “risk-on” relief rally wave into year-end.
Lean further into preference for U.S. stocks over international stocks, specifically targeting U.S. stocks with strong recent momentum.
Introduce a tactical allocation to gold we are funding from the fixed income sleave. We are expecting continued purchases from global central banks and traditional gold narratives to continue to resonate with investors.
Increase the credit risk for potential upside in bond-heavy portfolios, moving out of longer duration IG bonds for short-duration high yield and convertible bonds.
Regarding adding gold to our models, this is a small tactical allocation and something we haven’t owned in our models. The yellow metals impressive performance this year is especially noteworthy when you consider the strength of traditional economic drivers, particularly interest rates and the dollar. Our expectation is that central bank buying and an increasingly complex geopolitical landscape will reinforce gold’s role as an attractive diversifier to our current stock/bond positioning.
Housekeeping items
We got notice last week of the updated contributions limits for 2025.
A have a few of our clients have not fulfilled their RMDs for 2024 yet. We need to have these done by the end of the year, so we will be reaching out to those whose are outstanding in the next couple of weeks. If you have questions on your RMD please don’t hesitate to reach out to us.
We hope you and your families are doing well, and that everyone has a joyous time gearing up for the holiday season. We were a little shocked to go into Starbucks and hear Christmas music already. Is it just us, or does this moment seem to get earlier every year?
Please reach out with any questions you may have.