The Markets

Stock markets celebrated the results of the presidential election. Bond markets were less enthusiastic.

Last week, United States stock markets rallied, and the U.S. dollar gained against other currencies, following the presidential election. The CBOE Volatility Index, Wall Street’s Fear gauge, also moved lower after concerns about a long wait for election results were quelled by a swift result, reported Alexandra Semenova of Bloomberg.

“…the [stock] markets roared in approval of this Trumpvember surprise…Yes, expect tax cuts, less regulation, fewer guardrails, and a government no longer picking winners and losers (except for tariffs), all reasons why investors perceive the incipient environment to be advantageous. And yet, with all the dancing, dancing, dancing in the streets, note that this new freedom could be accompanied by greater risk in the capital markets,” reported Andy Serwer of Barron’s.

The bond market’s response to the election was measured. The Federal Reserve (Fed) began lowering the federal funds rate in September. Typically, Fed rate cuts lead to lower borrowing costs for consumers and businesses, which supports economic growth. However, the yield on the 10-year U.S. Treasury, which is a benchmark for mortgage rates, corporate bonds, and other loan rates, has trended higher since September as strong economic data caused the market to rethink its expectations for future rate cuts.

Now, the bond market is evaluating future rate cuts in the context of the new administration’s policies. “…the outlook for further rate cuts has been clouded by expectations that key elements of Trump’s economic platform such as tax cuts and tariffs will lead to faster growth and higher consumer prices. That could make the Fed wary of risking an inflationary rebound by cutting rates too deeply next year,” reported Davide Barbuscia and Lewis Krauskopf of Reuters.

Markets are likely to remain volatile over the coming weeks as investors speculate about the impact of new policies on financial markets. Last week, major U.S. stock indices surged higher. Yields on U.S. Treasuries were mixed with yields moving lower on the shortest and longest maturities and rising for other maturities.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

IT’S A DIRTY JOB…If you’re a fan of baseball, you probably know that major league baseball teams don’t use balls that are fresh out of the box. In fact, the Official Baseball Rules for 2024 explains umpires’ pregame duties which include:

“Receive from the home Club a supply of regulation baseballs, the number and make to be certified to the home Club by the Office of the Commissioner. The umpire shall inspect the baseballs and ensure they are regulation baseballs and that they are properly rubbed so that the gloss is removed. The umpire shall be the sole judge of the fitness of the balls to be used in the game.”

Usually, the gloss is removed by rubbing Lena Blackburne Baseball Rubbing Mud into the unused baseballs. “Originally marketed as ‘magic,’ it’s just a little thicker than chocolate pudding—a tiny dab is enough to remove the factory gloss from a new ball without mucking up the seams or getting the cover too filthy. Equipment managers rub it on before every game, allowing pitchers to get a dependable grip,” reported Emma Baccellieri of Sports Illustrated.

The mud is sourced from a secret location, somewhere along a tributary of the Delaware River, has been passed from generation to generation of this family business since the 1930s. The mud is unique because it has “a high clay content in the soil, an oddity for the area, plus brackish water from the tributary mixing with ‘cedar water’ dropping from nearby trees. Perfect conditions exist for only about a mile.” Jim Bintliff told Baccellieri.

Recently, researchers at the University of Pennsylvania School of Engineering and Applied Science and School of Arts & Sciences studied the mud and then published their findings in Proceedings of the National Academy of Sciences. According to ScienceDaily, the paper’s lead author devised three experiments to determine whether mudding baseballs is a superstition, like rally caps and playoff beards, or a value-adding process. The experiments measured the mud’s spread-ability and stickiness, as well as any change in “friction against the fingertips.”

The experiments confirmed baseball players’ long-held belief that magic mud really does improve the performance of baseballs. The substance “spreads like a skin cream and grips like sandpaper,” according to the research.

Weekly Focus – Think About It
“Baseball is 90 percent mental. The other half is physical.”
—Yogi Berra, baseball legend

The Markets

Are we witnessing an historic event?

For an airplane or a spacecraft, a soft landing occurs when the vehicle “touches the ground in a controlled and gradual way that does not damage it,” according to The Britannica Dictionary.

For the American economy, a soft landing happens when the Federal Reserve raises interest rates to cool the economy and push inflation lower—and achieves its goal without causing a recession and significantly higher unemployment. It’s not an easy task.

“Historically, soft landings have been tough to pull off…Keeping unemployment and inflation low while at the same time having robust growth is difficult. Threading that needle has proven to be quite elusive,” reported a source cited by Aly J. Yale of The Wall Street Journal.

Solid economic growth, low unemployment, rising wages, and falling inflation have one Federal Reserve official and several economists declaring that the American economy has achieved this rare event—a soft-landing, reported Bryan Mena of CNN.

So, exactly how well is the U.S. doing?

“The extent to which America has outperformed other countries since the start of the COVID-19 pandemic is breathtaking. Its real GDP has expanded by more than 10 [percent], nearly three times as much as the euro area. Among the G20 group, which includes both rich countries and emerging markets, America is the only one where output is above pre-pandemic expectations, according to the International Monetary Fund,” reported Simon Rabinovitch of The Economist.

Last week, “with an election and Federal Reserve meeting still to come, stocks faltered under the weight of the uncertainty,” reported Teresa Rivas of Barron’s. Major U.S. stock indices finished the week lower. Uncertainty about the direction of future government spending and its possible effect on Federal Reserve policy caused some turmoil in bond markets, too, reported Paul R. LaMonica of Barron’s. Yields on longer maturities of U.S. Treasuries moved higher over the week, while yields on shorter maturities moved lower.

PERCEPTION VS. REALITY. The human brain is complex and powerful. It runs on about 20 watts of power and brains need to be recharged, just like your cell phone does, according to Northwestern Medicine.

It’s interesting to note that brains are not objective. They catalogue our experiences, beliefs, and emotions and then interpret what’s happening around us. As a result, our reality on any given day is affected by “our personal physical abilities, energy levels, feelings, social identities, and more,” reported Jill Suttie in Greater Good Magazine.

For example, studies have found that hills look steeper when people are:

• Tired.
• Wearing backpacks.
• Thinking of people they dislike.

In contrast, hills look less steep when people feel energetic or think of a supportive friend.

An August survey from the National Federation of Independent Business, a small-business advocacy group, reinforced the idea that there is a gap between economic perception and economic reality. The survey found that small business owners were quite optimistic about the financial state of their businesses, reasonably optimistic about the state of their local economies, and pessimistic about the state of the U.S. economy.

When survey participants were asked when the United States might experience another recession, 52 percent said the U.S. economy was in a recession right now. A recession is a downturn in economic activity that lasts for a significant period. Economic data show the U.S. economy, as measured by gross domestic product (the value of all goods and services produced in the U.S.), has been growing since late 2020.

The answers were interesting because most businesses—small and large—experience declines in sales and profitability when the national economy is doing poorly or in a recession. The gap in perception and reality may reflect the fact that “people are upbeat about what they see directly but pessimistic about what they glean indirectly through media (and social media),” opined Rabinovitch of The Economist.

Weekly Focus – Think About It
“A politician needs the ability to foretell what is going to happen tomorrow, next week, next month, and next year. And to have the ability afterwards to explain why it didn’t happen.”
—Winston Churchill, former British Prime Minister

Sources:
https://www.britannica.com/dictionary/soft-landing
https://www.wsj.com/buyside/personal-finance/banking/what-is-a-soft-landing (or go to Https://resources.carsongroup.com/hubfs/WMC-Source/2024/11-04-24_Buy%20Side%20from%20WSJ_2.pdf)
https://www.cnn.com/2024/10/30/economy/us-economy-gdp-q3/index.html
https://view.e.economist.com/ (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/11-04-24_The%20Economist_Money%20Talks_4.pdf)
https://www.barrons.com/articles/market-tricked-investors-election-day-bounce-7ea56c39?refsec=the-trader&mod=topics_the-trader (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/11-04-24_Barrons_The%20Market%20Tricked%20Investors_5.pdf)
https://www.barrons.com/market-data?mod=BOL_TOPNAV (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/11-04-24_Barrons%20Data_6.pdf)
https://www.barrons.com/articles/bond-yields-jobs-report-treasury-6f6e602e?mod=md_bond_news (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/11-04-24_Barrons_Bond%20Yields%20Fell%20After%20Jobs%20Report_7.pdf)
https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2024
https://www.nm.org/healthbeat/healthy-tips/11-fun-facts-about-your-brain
https://greatergood.berkeley.edu/article/item/eight_reasons_to_distrust_your_own_perceptions
https://www.sciencedirect.com/science/article/abs/pii/S002210310800070X#:~
https://strgnfibcom.blob.core.windows.net/nfibcom/Banking-Survey-2023-Part-II.pdf [Questions 20-23]
https://fred.stlouisfed.org/series/GDP#0 (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/11-04-24_FRED%20Data_13.pdf)
https://www.investopedia.com/articles/economics/08/recession-affecting-business.asp#:
https://www.azquotes.com/quote/56321?ref=funny-political