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<ul class="summary-list"><li>The US economy looks strong, judging by GDP growth, profits, productivity, and the labor market.</li><li>JPMorgan Asset Management is upbeat heading into 2025, but a major risk looms.</li></ul>It looks like the most obvious threats to the economy have been neutralized for now, but a veteran strategy chief fears that an under-the-radar risk poses a threat to the global expansion.This economic backdrop bears little resemblance to the <a target="_blank" href="https://www.businessinsider.com/us-economy-stagflation-disaster-high-prices-inflation-high-unemployment-2022-3">so-called stagflationary environment</a> of 2022, a year where <a target="_blank" href="https://www.statista.com/statistics/188185/percent-change-from-preceding-period-in-real-gdp-in-the-us/">US GDP shrank in the first two quarters</a> as <a target="_blank" href="https://www.businessinsider.com/inflation-cpi-price-growth-june-2022-7">inflation hit multi-decade highs</a>.Fast forward to late 2024, and GDP has grown by at least 3% for <a target="_blank" href="https://www.bea.gov/data/gdp/gross-domestic-product">three of the last four quarters</a> and is expected to do so again in the third quarter, according to JPMorgan Asset Management. The firm estimates that consumer spending, which <a target="_blank" href="https://fred.stlouisfed.org/series/DPCERE1Q156NBEA">accounts for about two thirds of US GDP</a>, also likely accelerated to 3.5% on an inflation-adjusted basis last quarter, up from 2.8% in Q2.Meanwhile, price growth is <a target="_blank" href="https://www.businessinsider.com/inflation-september-cpi-consumer-price-index-federal-reserve-interest-rates-2024-10">remarkably close to the Federal Reserve's 2% target</a>, which allowed the US central bank to <a target="_blank" href="https://www.businessinsider.com/fed-cuts-interest-rates-how-much-september-fomc-powell-inflation-2024-9">start the interest rate easing cycle with a bang</a> in mid-September.Perhaps most encouraging is that the labor market appears to be healthy. <a target="_blank" href="https://www.businessinsider.com/september-jobs-report-unemployment-rate-nonfarm-payroll-growth-federal-reserve-2024-10">Job additions easily exceeded estimates</a> in September, and the unemployment rate is <a target="_blank" href="https://www.bls.gov/news.release/pdf/empsit.pdf">in check at 4.1%</a>.Corporate earnings growth, productivity growth, and business fixed investment all seem to be headed in the right direction as well. The same is true of wage growth, which JPMAM found has topped inflation for the last 17 months, underpinning solid consumer spending in the process.These signals have given David Kelly, JPMAM's chief global market strategist, great confidence.The economic outlook "seems remarkably benign with solid economic growth, low unemployment, resilient profits, a slow drift down in inflation, and gradual easing from the Federal Reserve," Kelly said in written commentary on October 28. The market veteran added that there aren't "signs of an imminent change in the economy's path."<h2 id="59ff7859-06ea-46e1-a918-af568c5cb476">A 'tariff'ying risk</h2>That seemingly picturesque backdrop helps explain why the S&amp;P 500 has risen 22% this year and is near record highs. But Kelly believes investors can't let their guards down."Investing has always been as much about risk as about return, and the key to long-term success is being prepared for both," Kelly said in his commentary.Kelly said to be wary of elevated stock valuations — which he and his colleagues at JPMAM <a target="_blank" href="https://www.businessinsider.com/investing-strategy-real-estate-stocks-bonds-portfolio-jpmorgan-asset-management-2024-10">said last week</a> could put a lid on future returns — and the market's heavy tilt toward mega-cap growth companies, even though <a target="_blank" href="https://www.businessinsider.com/cheap-stocks-to-buy-strong-growth-market-outlook-garp-bmo-2024-10">that has been changing</a> in recent months.However, neither of those overhangs is more serious than the potential fallout from a domestic or international political shock. When asked last week about the biggest risk to his long-term outlook, Kelly quickly arrived at an answer: a fierce global trade war marked by escalating tariffs."No matter which set of economists you have sitting here, every one of 'em will tell you that tariffs are not a good idea," Kelly said at JPMAM's <a target="_blank" href="https://www.businessinsider.com/investing-strategy-real-estate-stocks-bonds-portfolio-jpmorgan-asset-management-2024-10">annual long-term capital market assumptions conference</a> on October 21. "You can use it as a threat, though it's kind of like a nuclear threat — the whole point is, if you actually end up using it, you kind of screwed up somewhere."Economists usually disapprove of tariffs, which are taxes on foreign imports, in most cases. Tariffs promise to generate revenue for the home country while aiding domestic industries, but they can drive up consumer prices and prompt counter-tariffs that lead to trade wars.In a worst-case scenario, tariffs would result in higher prices and lower growth due to the waste and inefficiency that they create while hurting importers and exporters in both countries."A trade war could cause us to push up our inflation forecast and push out our growth forecast at the same time," Kelly said at the conference.While Democrats and Republican presidents have leaned on tariffs in the past, it's former President Donald Trump who's <a target="_blank" href="https://thehill.com/business/4945577-trump-tariffs-economy-trade/">promising to implement substantial tariffs</a> in this election cycle.While some say the threat of aggressive tariffs would help the US secure better trade terms, others are skeptical — if not outright scared.Such tariffs <a target="_blank" href="https://www.businessinsider.com/election-trump-harris-economy-inflation-stock-market-volatility-risk-orlik-2024-10">would cause "seismic shocks to the US economy,"</a> Tom Orlik, the chief economist at Bloomberg Economics, said earlier this month. Charles Schwab global investment strategy chief Jeffrey Kleintop <a target="_blank" href="https://www.businessinsider.com/how-to-invest-stock-market-international-investing-strategy-charles-schwab-2024-6">cited tariffs as a top risk</a> back in June. The nonpartisan Peterson Institute <a target="_blank" href="https://www.piie.com/blogs/realtime-economics/2024/trumps-proposed-blanket-tariffs-would-risk-global-trade-war">spoke out against Trump's tariff proposals</a>, as did the right-leaning <a target="_blank" href="https://www.wsj.com/opinion/donald-trump-tariffs-economy-2024-election-kamala-harris-robert-lighthizer-29c07e94">Wall Street Journal editorial board</a>.Although investors may want to take the possibility of tariffs more seriously, Kelly noted that even if they're a major headache, stocks and the economy should still be fine in the long term."I could have said 'pandemic' five years ago, if I'd been incredibly prescient," Kelly said at the conference. "But oddly enough, the global economy bounced back anyway. And so it wouldn't actually have been a very good thing to worry about."

The economy seems to be firing on all cylinders — but a veteran JPMorgan strategy chief says one underappreciated risk could cause a serious global slowdown

<ul class="summary-list"><li>Russia's oil revenue fell sharply year-over-year in October.</li><li>Oil-related tax revenue dropped 29% last month, while oil and gas proceeds fell more than 25%.</li></ul>Russia saw a double-digit drop in oil revenue last month, hitting an important source of funds for the Kremlin amid pressure on global crude prices. Moscow's revenue from oil-related taxes plummeted 29% year-over-year in October, from 1.48 trillion rubles to 1.05 trillion rubles, according to data from Russia's Finance Ministry. Oil and gas proceeds, which is largely made up of oil production taxes and profit-based taxes in the industry, also fell more than 25% to 1.21 trillion rubles.Total oil and gas revenue rose on a monthly basis, with October levels up more than 75% compared to September. However, that's largely because the profit-based tax on Russia's oil industry is due four times a year, with companies paying taxes in March, April, July, and October, <a target="_blank" class="" href="https://www.bloomberg.com/news/articles/2024-11-05/kremlin-oil-revenue-shrank-by-29-in-october-amid-lower-prices">Bloomberg reported</a>.The yearly drop has largely been fueled by <a target="_blank" class="" href="https://markets.businessinsider.com/news/commodities/russia-economy-oil-war-revenue-crude-prices-opec-production-cut-2024-9">falling crude prices</a>. International crude prices logged their <a target="_blank" class="" href="https://markets.businessinsider.com/news/commodities/oil-prices-today-israel-strike-iran-production-brent-wti-crude-2024-10">biggest drop in two years</a> last month after Israel's strike against Iran spared its oil infrastructure. Meanwhile, <a target="_blank" class="" href="https://markets.businessinsider.com/news/commodities/us-oil-opec-crude-production-record-oil-prices-commodity-market-2024-11">US producers are pumping more than ever</a>, complicating efforts by OPEC+ to crimp supply and boost the price. Brent crude, the international benchmark, traded around $75 a barrel on Tuesday, down 11% over the last year. Meanwhile, Urals crude, Russia's flagship oil blend, traded around $63.57, down around 24% compared to the same time last year, Bloomberg data shows.The drop in oil revenue throttles a key source of funds for <a target="_blank" class="" href="https://www.businessinsider.com/russia-economy-ukraine-war-outlook-moscow-sanctions-west-firms-uchicago-2024-10">Russia's war-driven economy</a>, which is becoming increasingly strained under the rising costs of its invasion of Ukraine. Russia's oil and gas industries have accounted for around 30%-50% of Russia's federal budget revenue for the last decade, according to an <a target="_blank" href="https://www.oxfordenergy.org/publications/follow-the-money-understanding-russias-oil-and-gas-revenues/">analysis</a> from The Oxford Institute for Energy Studies. Russia's <a target="_blank" class="" href="https://www.businessinsider.com/russia-economy-outlook-defense-budget-spending-ukraine-war-putin-sanctions-2024-10">defense state spending</a>, meanwhile, is on track to hit a post-Soviet high in 2025.

Russia's oil revenue plummeted 29% in October amid volatile global crude prices

<ul class="summary-list"><li>The dollar has gained since Trump's election and his policies could boost the greenback further. </li><li>A stronger dollar could suppress global trade and complicate inflation abroad, a think tank researcher said.</li></ul>Donald Trump's proposed policies are likely to give the US dollar a boost during his second term, but a stronger US currency has the potential to unleash chaos in global markets, according to one think tank researcher. Michael Klein, a senior research fellow at Chatham House, an international affairs think tank, wrote this week that the dollar will likely rise under Trump, despite Trump's own suggestion that he would like <a target="_blank" class="" href="https://www.businessinsider.com/us-dollar-trump-presidential-election-weaker-usd-policy-intervention-trillions-2024-7">to see a weaker dollar</a> to slim the US trade deficit.That's unlikely to happen, Klein said, largely because the greenback's other currency rivals remain challenged and because Trump's policies are bullish for the dollar. "President-elect Donald Trump has a dollar problem. In recent months he has shown a clear preference for a weaker exchange rate to support the competitiveness of US exports and help reduce the US trade deficit. And yet, as the market has sensed since the US election, the much more likely outcome is that his policies end up strengthening the greenback. The risk is that the US dollar— which is expensive already — becomes more obviously overvalued, and this could increase the risk of global financial stability," Klein wrote.Klein said a <a target="_blank" href="https://www.businessinsider.com/strong-us-dollar-exchange-rate-companies-investors-inflation-interest-rates2022-7">stronger dollar</a> could be bad news for other economies around the world. Given how widely the greenback is used across financial markets, global trade could be suppressed if the dollar gains in value.Countries that find their currency devalued against the dollar, meanwhile, could have a harder time taming inflation."If and when the dollar becomes unsustainably expensive, a further problem will present itself: how to deal with an overvalued currency without risking a lot of financial dislocation," Klein said. "Without much scope for a negotiated decline in the dollar, more chaotic alternatives seem likely."Markets have already picked up on the likelihood of a stronger US currency under Trump's presidency. The <a target="_blank" class="" href="https://markets.businessinsider.com/index/us-dollar-index">US Dollar Index</a>, which weighs the greenback against a basket of currencies, has climbed around 3% over the last month and briefly surpassed 107 on Thursday, its highest level in a year.Several of Trump's policies are supportive of a stronger US currency. Klein pointed to Trump's plans for steep tariffs, which include a 10% blanket tariff on most US imports and a 60% tariff on Chinese imports.The US imposing tariffs on another country also tends to devalue the other country's currency, Klein added, due to traders selling the currency on foreign exchange markets. Such was the case in 2018, when Trump's trade restrictions on China led the yuan to depreciate 10% against the dollar that year, Fed data shows."More widespread tariffs on a whole range of US trading partners should therefore strengthen the dollar more broadly," Klein added.Economists have also said <a target="_blank" class="" href="https://www.businessinsider.com/trump-tariffs-higher-inflation-fed-interest-rates-taxes-mortgage-rates-2024-11">Trump's tariff plan</a> could stoke higher <a target="_blank" class="" href="https://www.businessinsider.com/donald-trump-election-win-high-inflation-risk-tariffs-deportations-taxes-2024-11">inflation</a> and higher interest rates, which would prop up the greenback. Trump's other policies, like his plan to <a target="_blank" class="" href="https://www.businessinsider.com/trump-tax-plan-tarriffs-benefits-top-earners-study-2024-10">cut taxes</a>, could also add to price pressures, Klein said."Since boosting the US economy will create inflationary pressure, the market will expect interest rates to end up higher than they might otherwise be. The resulting combination of looser fiscal and tighter monetary policy tends to lead to a stronger currency," Klein said.Trump has pushed back on the idea that his policies could stoke higher prices, and maintained that he will push inflation lower during his presidency. He brought tariffs on some imports from China during his first term without a significant inflation increase, but economists say his tariff plan this time around is more wide-reaching, with a higher likelihood prices rise as a result.

Why a strengthening US dollar could spark instability in global markets in Trump's 2nd term

<ul class="summary-list"><li>The oil market could see a surplus of one million barrels of crude a day in 2025, the IEA forecast.</li><li>The excess will be driven by low demand in China and booming output from non-OPEC countries.</li></ul>The oil market could see a major supply glut in 2025 thanks to <a target="_blank" class="" href="https://markets.businessinsider.com/news/commodities/us-oil-opec-crude-production-record-oil-prices-commodity-market-2024-11">booming production</a> from non-OPEC states like the US and sagging demand in <a target="_blank" class="" href="https://www.businessinsider.com/oil-price-today-middle-east-israel-hezbollah-conflict-china-economy-2024-10">China</a>, according to the International Energy Agency.The IEA said in its November Oil Market Report that the world's oil market is on track for a one-million barrel-a-day surplus next year.The excess is largely being driven by a weakening economy in China. Demand for oil in the world's second-largest economy contracted for six straight months in a row as of September, IEA data shows. This accounted for the "main drag" on demand this year, the report said.Meanwhile, the agency is predicting strong oil production among non-OPEC producers led by countries like <a target="_blank" href="https://markets.businessinsider.com/news/commodities/us-oil-opec-crude-production-record-oil-prices-commodity-market-2024-11">US</a>, <a target="_blank" class="" href="https://markets.businessinsider.com/news/commodities/oil-outlook-brazil-guyana-record-american-opec-market-share-saudi-2023-12">Guyana</a>, Argentina, and Brazil.Altogether, non-OPEC producers are on track to expand oil production by 1.5 million barrels a day, it estimated. That amount is more than the agency's forecast for world oil consumption to grow by 990,000 barrels a day next year.OPEC+, the oil cartel led by Saudi Arabia, has also said it will unwind its 2.2 million barrel-a-day <a target="_blank" class="" href="https://markets.businessinsider.com/news/commodities/crude-oil-outlook-opec-production-markets-saudi-arabia-russia-economy-2023-12">production cuts</a>, which have put pressure on supply over the past few years. The group could start lifting its production quota as soon as January, per its latest announcement. "Our current balances suggest that even if the OPEC+ cuts remain in place, global supply exceeds demand by more than 1 mb/d next year. With supply risks omnipresent, a looser balance would provide some much-needed stability to a market upended by the Covid pandemic, Russia's full-scale invasion of Ukraine and, most recently, heightened unrest in the Middle East," the IEA added.The US has become the <a target="_blank" class="" href="https://www.eia.gov/todayinenergy/detail.php?id=61545">largest oil producer</a> in the world, pumping out more crude than any other country in history for the last six years in a row, according to the US Energy Information Administration. Domestic production hit a record 13.4 million barrels a day in August, according to data from the Energy Information Administration.

China's weak economy and record US production will lead to a surplus of one million barrels of oil a day next year, IEA says

Union Finance Minister <keyword id="19916618" type="General" weightage="100" keywordseo="Nirmala-Sitharaman" source="keywords">Nirmala Sitharaman</keyword> highlighted India's significant progress in electrification, <keyword id="23692737" type="General" weightage="20" keywordseo="water-accessibility" source="keywords">water accessibility</keyword>, and <keyword id="20879840" type="General" weightage="20" keywordseo="economic-empowerment" source="keywords">economic empowerment</keyword> during a fireside chat with John J Hamre, President and CEO of the Center for Strategic and International Studies (CSIS), in Washington, DC. Highlighting the progress made in <keyword id="23003732" type="General" weightage="20" keywordseo="rural-electrification" source="keywords">rural electrification</keyword>, <keyword id="19916494" type="General" weightage="20" keywordseo="sitharaman" source="keywords">Sitharaman</keyword> highlighted that every village in India now has access to electricity. She noted that in 2014, many villages across India, including those near state capitals, lacked even basic infrastructure for electrification. She said "I don't think any village in India is unelectrified today. Households have received the connections. So, if I remember the situation in 2014, there were still many villages in many parts of India, some even very close to the state capital, provincial headquarters, without even a pole to receive the electric wires. Now, all that has been overcome. Houses have got their electricity." The Finance Minister also discussed the <keyword id="19971121" type="General" weightage="20" keywordseo="Jal-Jeevan-Mission" source="keywords">Jal Jeevan Mission</keyword>, a program initiated by Prime Minister Narendra Modi to provide tap water connections to every household. She explained, "Earlier, one tap water connection was provided to a village, from where everyone would take water to their home. But under the 'Jal Jeevan Mission,' each and every house gets a tap water connection." Sitharaman emphasized the positive impact of this initiative on health, sanitation, and convenience for millions of Indian families. Turning to the economic empowerment of <keyword id="20101496" type="General" weightage="20" keywordseo="municipalities" source="keywords">municipalities</keyword> and urban centers, Sitharaman noted that these local governments are receiving increased autonomy and financial support. She explained that municipalities receive a portion of taxes collected by the central government, along with additional funds based on the Finance Commission's recommendations. "Over and above, today, we are enhancing their capacities to raise resources from the market. Municipalities are a very powerful instrument of economic development and they, on their own, are raising a lot of resources," she added. Sitharaman also expressed confidence in India's economic growth and its appeal to <keyword id="20632552" type="General" weightage="20" keywordseo="global-investors" source="keywords">global investors</keyword>. "The policies are working, reforms are happening, and they shall continue to happen," she stated, adding that "greater liberalisation of the economy will be there and, in a way, we are accessing newer markets and speaking about the <keyword id="19948184" type="General" weightage="20" keywordseo="Indian-economy" source="keywords">Indian economy</keyword> in more avenues and platforms that will attract more investors." With ongoing reforms and increased global engagement, Sitharaman noted, India is solidifying its position as a significant player on the world stage, expanding its economic reach and inviting foreign investment.

No village in India left without access to electricity, claims FM Nirmala Sitharaman

Mumbai: India is on track to becoming the <keyword id="20432305" type="General" weightage="20" keywordseo="third-largest-economy" source="keywords">third-largest economy</keyword> by 2030-31, driven by a projected annual growth rate of 6.7 per cent this fiscal, <keyword id="19990557" type="General" weightage="20" keywordseo="SP-Global" source="keywords" meta.keywordsubtype="org" meta.entityname="S&amp;P Global" meta.hostid="153" meta.entityid="S&amp;P Global">S&amp;P Global</keyword> said in a report on Thursday. The report also said that with 8.2 per cent growth rate in FY2024, continued reforms are crucial to improving business transactions and logistics, boosting <keyword id="20423043" type="General" weightage="20" keywordseo="private-sector-investment" source="keywords">private sector investment</keyword>, and reducing reliance on public capital. It said equity markets are expected to stay dynamic and competitive due to strong growth prospects and better regulation, and foreign inflows into Indian government bonds have surged since the country joined major emerging market indexes, with further growth anticipated. To maximize trade benefits, India must develop infrastructure and geopolitical strategies, particularly regarding its extensive coastline, said the first edition of 'India Forward: Emerging Perspectives' report. Nearly 90 per cent of India's trade is seaborne, necessitating robust port infrastructure to manage increasing exports and bulk commodity imports, it added. Noting that India faces rising domestic energy demands and can look to sustainable technologies, including renewables and low-emission fuels, balancing energy security with its energy transition plans, the report stated that agriculture will rely on advanced technologies and new policies to improve infrastructure and productivity. The need is to address critical infrastructure issues such as irrigation, storage, and supply distribution to ensure food security and economic stability, it added. The <keyword id="23234467" type="General" weightage="20" keywordseo="sp-global-india-research" source="keywords">S&amp;P Global India Research</keyword> Chapter's inaugural study was launched here on Thursday.

India on track to becoming third-largest economy by FY31: S&P Global report

<ul class="summary-list"><li>The Fed has started cutting rates, but it's not likely to boost the economy much, Lisa Shalett says.</li><li>The economy is less rate-sensitive than it was during previous rate cuts, Shalett argues.</li></ul>Rate cuts have long been seen as an integral part of the Federal Reserve's monetary policy toolbox to juice up the economy.However, don't expect rate cuts to save the economy this time around, according to Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management.Investors may have reacted positively after the initial 50-basis-point cut, but Shalett believes rate cuts have already been largely priced in from here on out. Beyond the stock market, several parts of the economy aren't very sensitive to interest rate cuts and won't see much upside either.Today's economy is facing different challenges than it has in past cutting cycles. In an interview with Business Insider, Shalett shared what to expect — and not expect — from this cutting cycle.<h2 id="f23ffa4b-b498-4d31-84b2-6a9dff847e03">3 reasons rate cuts won't work</h2>First, companies today are carrying more cash, resulting in stronger balance sheets.Many also locked in low borrowing rates after the Global Financial Crisis. The average cost of capital for the biggest companies in the index is only 4.2%, according to Shalett. With less debt, and subsequently fewer interest payments, many S&amp;P 500 constituents aren't that exposed to interest rate risk.Household consumption also points to reduced rate-cut relief. Wealth is disproportionately concentrated across American households, Shalett said, with the top 40% of households driving two-thirds of total consumption."For those households with net savings, high interest rates were actually stimulative," Shalett said. High-income households with extra cash on hand benefited from increased interest income in a higher-rate environment.One example is baby boomers, many of whom live off of fixed incomes in retirement. "For them, lower interest rates are not stimulative. It's actually net reductive to their incomes," Shalett said.While lower interest rates could potentially spur consumption for lower-income households, this group makes up only a small portion of overall spending, so don't count on that to materially stimulate the economy, she said.Lastly, the housing market poses a large challenge for the economy, and Shallett doesn't believe rate cuts will be able to improve the situation.Lower mortgage rates can help housing affordability, but they won't solve the underlying issue of housing inventory undersupply. According to Shalett, the US is about 4 million housing units short, thanks to a lack of construction after the housing crisis.In addition to a dearth of supply, how homes are financed also poses an issue."Forty percent of the entire housing stock of the US is now owned outright with zero mortgage," Shalett said. That means homeowners are disincentivized to sell into a housing market where mortgage rates — while down from earlier highs — are still hovering around 6%. Many of these homes are owned by retired baby boomers, Shalett added.Another 36% of the housing market has a mortgage locked below 4%, thanks to record-low pandemic interest rates."So the fact that mortgage rates are at 6% today doesn't really create an incentive for those people to transact in the mortgage market," Shallett said. "Seventy-six percent of your entire housing market is frozen and is not moved by the rate cuts."<h2 id="002388a3-cc3f-44ad-bf7c-dd5d6ca2a259">Keep an eye out for corporate earnings</h2>If rate cuts won't significantly kickstart the economy, then what will?In Shalett's view, the economy's success hinges on increasing corporate productivity. Shalett recommends that investors closely monitor corporate earnings for the upcoming quarters.Earnings expectations are already quite ambitious for the next year — Wall Street is forecasting 13-14% profit growth in 2025, a tall order in a slowing economy.However, a productivity-driven rebound isn't out of the question. Companies are still reporting above-average capital expenditures, and government stimulus will boost areas of the economy such as infrastructure and energy. And the promise of AI could also drive productivity gains. All of these factors could lead the economy to a soft landing.

3 reasons rate cuts won't stimulate the economy like they have in the past: Morgan Stanley Wealth Management CIO 

<ul class="summary-list"><li>The Fed looks like it's following the same path it did in 1995, according to TS Lombard.</li><li>That sets the stage for the economy to avoid a recession as it did in the 90s, the firm said.</li></ul>The Fed is following a 30-year-old playbook with its interest rate moves — and that's good news for the US economy, according to TS Lombard.The firm pointed to the central bank's <a target="_blank" class="" href="https://www.businessinsider.com/fed-cuts-interest-rates-how-much-september-fomc-powell-inflation-2024-9">50 basis point cut</a> to the federal fund rate this week. That was <a target="_blank" href="https://markets.businessinsider.com/news/stocks/interest-rates-today-fed-meeting-cut-stock-market-powell-economy-2024-9">exactly what investors were looking for</a>, and it could lay the groundwork for a booming stock market and economy, according to Dario Perkins, the firm's managing director of global macro.He notes that the Fed's latest rate cut has created a parallel to what central bankers did in 1995, when Fed officials eased the Federal funds rate from a peak of 6% to around 4.75% over three years. That took interest rates back to a neutral level, stave off a recession, and ultimately spark a new economic boom. By 1998, GDP growth had accelerated from 4.4% to nearly 5%. Meanwhile, the S&amp;P 500 soared 125% by the end of the Fed's cutting cycle, according to data from the <a target="_blank" href="https://www.aier.org/article/fed-rate-cuts-are-unlikely-to-goose-the-stock-market-or-prevent-a-recession/#:~:text=Case%20%233%20%E2%80%93%20In%20April%201995,and%2Da%2Dhalf%20years.">American Institute for Economic Research</a>.Fed officials look on track to pull off the same maneuver, Perkins suggested, attributing this week's jumbo-sized rate cut to central bankers' belief that they were further away from the neutral rate than they were several decades ago."Our view is that this cutting cycle will probably play out like Greenspan's mid-course 're-calibration' of policy in the mid-1990s," Perkins said in a note on Wednesday. "Even if the US labour market deteriorates more than we expect and the Fed falls behind the curve, there is no real threat of a deep recession."Stocks soared a day after the big rate cut. Despite wobbling in the hours after the Fed's rate move, the major indexes hit fresh records in Thursday trades. "We think the soft landing is still very much in play," Perkins added. "And while the danger of the Fed falling behind the curve is real, we think the repercussions would be manageable. It is hard to foresee anything worse than a mild recession," he later wrote.Some forecasters are still wary of the Fed's latest policy move due to concerns that cutting interest rates too quickly could ignite a fresh bout of inflation. The market, though, has mostly shrugged off that risk, with <a target="_blank" class="" href="https://fred.stlouisfed.org/series/EXPINF1YR">one-year forward inflation expectations</a> remaining just above 2% in September, according to Cleveland Fed data.

The Fed is following its 1995 playbook — and that's great news for stocks and the economy

<ul class="summary-list"><li>Leading strategists generally agree that trying to trade around the election is a mistake.</li><li>But one chief economist says there's a notable exception if a certain result plays out.</li></ul>Election-year autumns are full of debates, including Tuesday night's <a target="_blank" href="https://www.businessinsider.com/jd-vance-tim-walz-vp-debate-agreement-civility-2024-10">refreshingly respectful and civil</a> vice-presidential showdown between Democrat Tim Walz and Republican JD Vance.But there isn't usually much disagreement about how to trade heading into elections.Top market strategists and economists at the Bloomberg Volatility Forum on October 1 generally agreed on one point: Investors who don't bet on the outcome of elections may be better off.The race between Kamala Harris and Donald Trump will be too close to call, according to <a target="_blank" href="https://www.270towin.com/2024-presidential-election-polls/">the latest polls</a> and <a target="_blank" href="https://puck.news/podcast_episode/nate-silver-harris-v-trump-is-the-closest-election-ive-ever-seen/">top political pundits</a>, so market veterans said investors shouldn't try to predict who will win.And even if a crystal ball told traders who'd win the White House, it may not make them money, as Nancy Davis, the founder and chief investment officer at Quadratic Capital, noted."Market timing, to me, is something really, really hard to do — because even if you know the event outcome, you don't necessarily know how liquidity is positioned or how much cash is on the sideline," Davis said, citing the aftermath of Brexit as an example.Still, investors should be mindful that one outcome — a Trump presidency that implements some of the toughest economic sanctions he campaigned on — could cripple growth and inflation, says Tom Orlik, the chief economist at Bloomberg Economics.<h2 id="839694a0-f1ec-457d-9262-aa3ac1dcb979">The market isn't freaking out about the election, but protection may still make sense</h2>Market volatility, as measured by the CBOE Volatility Index (<a target="_blank" href="https://markets.businessinsider.com/index/vix">VIX</a>), has historically been elevated in the month before US elections, said Tanvir Sandhu, the chief global derivatives strategist at Bloomberg Intelligence. The VIX usually hovers around 25 in October, Sandhu noted. For context, the volatility gauge usually stays between 10 and 20 and only rarely approaches 30.While the VIX is up 23% since late September, the so-called "fear index" is still under 20. That relatively muted volatility coincides with a strong stretch for US stocks. The S&amp;P 500 is trading near record highs after a <a target="_blank" href="https://www.businessinsider.com/fed-cuts-interest-rates-how-much-september-fomc-powell-inflation-2024-9">larger rate cut</a> than many market participants expected.Considering the looming election and its impossible-to-predict implications, it's fair to wonder whether investors are being complacent. Traders who are feeling antsy may seek to hedge by buying <a target="_blank" href="https://www.investopedia.com/terms/p/putoption.asp">puts</a> or selling <a target="_blank" href="https://www.investopedia.com/terms/c/calloption.asp">calls</a>, especially since options premiums aren't overly pricey.Or, as Chris Murphy, the cohead of derivatives strategy at Susquehanna put it, investors may want "upside protection" so they're not caught offside if markets suddenly surge. Since volatility is in check, buying calls may pay off."We typically see a rally into year-end after the election," Murphy said. "There are opportunities there to protect yourself" from such an upswing without going all in, he added, like buying cheap calls.<h2 id="023e721c-202d-438b-8516-970d8bc4f050">One election result may cause 'seismic shocks'</h2>Partisans are convinced that this election is the most important ever, as they <a target="_blank" href="https://www.vox.com/21504729/most-important-election-bush-gore-kerry-trump">always</a> <a target="_blank" href="https://slate.com/news-and-politics/2020/11/most-important-election-of-our-lifetimes-history.html">are</a>. The market isn't convinced, judging by where the VIX is trading just a month away from election day.But Orlik of Bloomberg Economics disagrees. He foresees three plausible outcomes from next month's elections, including a potentially dangerous one.The status-quo outcome would be if Harris beats Trump and Congress remains divided. In that scenario, Orlik would expect continuity and similar economic policies as Joe Biden has had.Another positive result for investors could be if Trump wins and his second term is similar to his first, where taxes and regulations are kept at a minimum, Orlik said. He pointed out that this type of Republican presidency has historically been one of the best environments for US stocks and the economy."Implicit in the sanguine anticipation of the election from the financial markets is the baseline view that either it be continuity with Kamala Harris, or it'll be the small government," Orlik said.The third potential result is what has Orlik worried: a Trump term with "extreme" policies on <a target="_blank" href="https://www.pbs.org/newshour/economy/trump-favors-huge-new-tariffs-how-do-they-work">tariffs that he's floated</a> and deportation of undocumented immigrants."I don't think people are actually taking that possibility extremely seriously right now, but perhaps they should," Orlik said. "Because these would be seismic shocks to the US economy — an absolutely enormous impact on growth, an absolutely enormous impact on inflation, and an enormous impact on Fed policy."Tariffs are import taxes designed to make domestic goods relatively attractive while raising money for the government that issues them. However, many economists and <a target="_blank" href="https://www.businessinsider.com/how-to-invest-stock-market-international-investing-strategy-charles-schwab-2024-6">strategists hate them</a> because they can make all goods more expensive while hurting economic growth.Both Trump and Biden have implemented tariffs against rivals like China, but Orlik believes Trump's latest proposals — which include a 60% tariff on Chinese goods and a 20% tariff on all other imports — would devastate the US economy and corporations."Let's think about a world where Trump gets into power and poses a 60% tariff on China," Orlik said. "Can anyone think of a company — perhaps a company with a fairly large weight in US equity indexes that wouldn't be able to operate in a world of 60% US-China tariffs? I can think of a lot: Apple, Nvidia, Qualcomm — all of the companies big in the US equity indexes near record highs would basically not be able to operate their supply chains in a world of 60% US-China tariffs."Murphy isn't as concerned as Orlik since Trump could always backtrack on tariffs, but he still believes that investors should be on their toes heading into November 5."Trump sees the stock market tanking, and then does he go, 'I'm not doing this anymore because my stock market's tanking,' and he reverses very quickly," Murphy said. "So you have to monetize those tail hedges potentially pretty quickly, but a tail hedge like that could — in theory — be something that catches people off guard."

Beware of 'seismic shocks' to the US economy and inflation if this specific election outcome occurs, according to a top mind at Bloomberg Economics

<ul class="summary-list"><li>The yen carry trade unwind remains a risk to the US stock market, Ed Yardeni said.</li><li>Hawisk comments from Bank of Japan Governor Kazuo Ueda spurred fresh volatility last week, he said.</li></ul>The carry trade unwind that <a target="_blank" href="https://markets.businessinsider.com/news/stocks/stock-market-crash-yen-carry-trade-unwind-fed-japan-rates-2024-8?utm_medium=ingest&amp;utm_source=markets">rocked markets</a> last month remains a threat, Ed Yardeni wrote in a note on Sunday. To the market veteran, last week's 4.3% slump in the <a target="_blank" href="https://markets.businessinsider.com/index/s&amp;p_500?utm_source=markets&amp;utm_medium=ingest%3Futm_source%3Dmarkets&amp;utm_medium=ingest&amp;utm_medium=ingest&amp;utm_source=markets&amp;utm_medium=ingest&amp;utm_source=markets">S&amp;P 500</a> doesn't make much sense when the Federal Reserve is ready to ease monetary policy. Instead, another factor is likely at play. "Why are stock prices falling when the Fed is set to lower interest rates to avert a recession and to stop the unemployment rate from rising by boosting economic growth? We had a glimpse of the answer in early August: The carry trade is still unwinding," Yardeni wrote.The popular trade has seen investors borrow cheaply in the Japanese yen over recent years, taking advantage of the country's ultra-low interest rates. These funds were then redeployed into higher-yielding assets, especially US tech stocks, Yardeni said.But the carry trade buckles when Japan tightens rates, as it did in August. A surprise 15 basis point hike forced traders to sell assets to cover margin calls, contributing to a dramatic US stock <a target="_blank" href="https://markets.businessinsider.com/news/stocks/stock-market-crash-picks-up-recession-fears-carry-trade-unwind-2024-8">plunge on August 5th</a>.Although the market has since recouped its losses, benchmark indexes tumbled once again in the first week of September, wit the S&amp;P 500 notching its largest weekly decline since the collapse of Silicon Valley Bank in March 2023.Blame has chiefly fallen on last week's jobs report, as labor weakness has triggered recessionary fears. But while Friday's data release was weaker than hoped, the headline number only slightly missed estimates and the unemployment rate ticked down. In Yardeni's view, the reaction to the data is a passing growth scare."Our assessment of Friday's employment report is that it wasn't as bad as widely believed. Furthermore, some of the apparent weakness in employment suggests that productivity growth may continue to surprise to the upside," Yardeni said in a separate note.In this context, another factor contributed to the most recent sell-off, Yarden said: hawkish interest rate comments from Bank of Japan Governor Kazuo Ueda.On Tuesday, the governor confirmed that interest rates will keep rising in Japan if the country's economy and prices remain in line with the bank's expectations, <a target="_blank" href="https://www.bloomberg.com/news/articles/2024-09-03/boj-ueda-reiterates-stance-of-lifting-rates-if-outlook-realized">Bloomberg</a> said. That day, the yen strengthened against the US dollar."Japan's short-term rates are still very low. If the economy is in healthy condition, they will move up to levels we consider neutral," Ueda also said two weeks ago, <a target="_blank" href="https://www.ft.com/content/b168bb8d-227d-479a-81a4-93d07d6bf4f1">during a parliamentary hearing</a>.Immediately after August's carry trade sell-off, JPMorgan similarly warned investors that the <a target="_blank" href="https://markets.businessinsider.com/news/stocks/stock-market-crash-carry-trade-yen-boj-interest-rates-selloff-2024-8">unwinding is only half done</a>.

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