This rarest of election years

The investment landscape is currently shaped by rising bond yields, which have increased by approximately 60 basis points since mid-September, influenced by strong economic growth forecasts and political developments. This rise in yields has negatively impacted the housing market, with existing home sales reaching their lowest since 2010 and mortgage rates spiking, though home prices continue to ascend. The bond selloff is not isolated to the US but is a global trend, with international bond markets facing potential negative returns for the third consecutive year.

Despite these challenges, the equity market remains robust, with the S&P 500 and gold both experiencing significant gains, an unusual occurrence. Investor sentiment is bullish, and credit spreads are narrowing, suggesting optimism about future economic conditions. However, the lack of a typical market correction ahead of the election raises the possibility of post-election volatility.

Economic indicators present a mixed picture: consumer sentiment has improved, and US services PMI has risen slightly, but manufacturing remains below expectations. Durable goods orders fell in September, primarily due to a decline in aircraft orders, though non-defense capital goods orders reached a new high. The Federal Reserve's Beige Book indicates a stagnant economy with an election-driven wait-and-see attitude.

Globally, China is attempting to overcome economic stagnation, focusing on industrial capacity rather than consumption, while Germany faces economic challenges due to its reliance on heavy industry and exposure to China. The euro zone is experiencing contraction in manufacturing, although services show modest expansion. In contrast, the US has seen strong GDP and productivity growth, even if consumer sentiment remains subdued.

Overall, financial advisors and portfolio managers should be mindful of potential inflationary pressures, the impact of political developments on fiscal policy, and the implications of global economic trends on investment strategies. Diversification and a balanced approach to risk management remain crucial in navigating the current market environment.