Week of October 28th, 2024

Key Points for the Week

• As we get closer to the election, some pre- and/or post-election volatility would be perfectly normal.
• As we approach election day, the presidential election and control of the House remain near a coin toss, but Republicans retain an edge in taking control of the Senate.
• Historically, markets have preferred divided government but have generally been indifferent to the party of the president.

Current Trends & News is a weekly financial recap curated by SPC Financial®’s team of wealth management and tax-integrated advisors.* We monitor and explore the intricacies of the financial world and share insights into market developments.

Economic Update

The United States election is less than two weeks away. The candidates are neck and neck. The outcome remains uncertain, and expectations for volatility have been rising, with the CBOE Volatility Index (VIX) finishing last week at 20.33.

“When the VIX goes north of 20, Wall Street pays attention because that level signals heightened volatility.”

↳Connor Smith, Barron’s

One reason for heightened volatility may be concerns about the election.

“There are plenty of theories about how particular stocks will fare, depending on next month’s outcome. It is not hard to see why. The candidates have tried to curry favor with voters by championing or attacking favored industries, and sometimes individual companies. Vice President Harris has promised to raise the corporate tax rate, a move that could cut into corporate earnings, and Democrats are widely seen as tougher on antitrust issues, a potential hurdle for Wall Street banks looking to capitalize on pent-up (merger and acquisition) activity.

Estate Taxes are another area of concern since the current rules also sunset on December 31, 2025. No one knows exactly what the new thresholds and tax rates will be. Most estimates are that the federal exemption will fall to approximately $6,000,000. There are Senators that figure the rich should pay more and they want the threshold to be lower so that more “wealthy” estates pay more taxes.

For example, Senator Elizabeth Warren's proposal on estate taxes is part of her broader plan to address wealth inequality and fund initiatives like affordable housing. Specifically, she advocates returning the estate tax thresholds to the levels of 2009, at the end of the George W. Bush administration. This would mean lowering the exemption to $3.5 million (down from the current $13.6 million in 2024) and reinstating a top estate tax rate of 45% for estates exceeding that amount.

Trump, meanwhile, has threatened hefty new tariffs, which could help U.S. manufacturers but hurt multinationals. He has even threatened individual companies like John Deere over plans to move manufacturing facilities abroad. The good news? Investors can mostly shrug the campaign rhetoric off and focus on stocks’ fundamentals.”

↳Ian Salisbury, Barron’s

So far, third-quarter earnings reports have been strong. Regardless, stock market investors became significantly less bullish last week, according to the AAII Investor Sentiment Survey. The survey asked investors whether they think the stock market will move higher (bullish) or lower (bearish) over the next six months.

• Bullish sentiment declined from 45.5 percent the week of October 16 to 37.7 percent last week. (The historic average for bullishness is 37.5 percent.)
• Bearish sentiment increased from 25.4 percent to 29.9 percent. (The historic average for bearishness is 31 percent).
• Neutral sentiment also increased from 29.2 percent to 32.4 percent. (The historic average is 31.5 percent.)

Bond investors also have been adjusting their expectations. Since mid-October, the yield on the benchmark 10-year U.S. Treasury note has trended higher. At the start of the month, the 10-year note yielded 3.74 percent. Last week, its yield rose from 4.07 percent to 4.23 percent.

“The rise is likely a reflection of the fact the Federal Reserve will cut interest rates fewer times than investors had thought after September’s Federal Open Market Committee meeting, a result of inflation being above its target and a job market that has grown faster than expected. Also, Donald Trump’s chances of winning the presidential election have risen in the past few months, according to RealClearPolitics. His policies include fiscal spending and tariffs, both of which create inflation and throw cold water on the idea that the Fed will cut rates many times. While the economy could continue to grow, tariffs, for their part, not only lift prices, they destroy demand.”

↳Jacob Sonenshine, Barron’s

Ben Levisohn of Barron’s offered some advice to anyone getting swept up in pre-election jitters.

“The truth of the matter is that reading the financial market tea leaves is far from straightforward…In fact, investing with your politics is one of the worst ways to lose money—or miss out on gains.”

↳Ben Levisohn, Barron’s

Last week, the S&P 500 Index and Dow Jones Industrial Average moved lower, while the Nasdaq notched a seventh week of gains. Yields on longer maturities of U.S. Treasuries moved higher over the week.

This Week in the Markets

Stocks fell last week, but the S&P 500 index was higher the previous six weeks, giving us the longest weekly win streak this entire year. After such a strong week, some volatility was perfectly normal, especially considering the election is right around the corner.

Still, the S&P 500 has had a strong year. If the year ended right now it would be the best election year return since 1980. Some additional election volatility is still possible, of course. The good news is long weekly win streaks tend to happen in bull markets. Since 1950, we found there were 22 other times the S&P 500 had a six-week win streak (meaning stocks were lower the seventh week) and it was higher a year later 19 times and up a solid 12.6% on average. Yes, the returns over the next month were negative, but after long winning streaks this should not be very surprising.

Going back 50 years, we found there were five other bull markets that made it past their second birthday, and the worst any of them did was another three years (which happened twice). Meanwhile, the average bull lasted eight years and gained 288% when all was said and done. No one knows how long this bull will last, but the bottom line is history says that this bull market may last longer than probably most expect.

October is not quite over yet and there is a chance stocks could finish higher for the sixth month in a row and eleventh time out of the past twelve months. It turns out when stocks gain five months in a row, they are higher a year later 28 out of 29 times, with a gain of more than 10% on average.

Lastly, when stocks gain ten of eleven months (like now) they are higher a year later nine out of ten times and up nearly 15% on average.

Election Year Revisited

There is still a lot of uncertainty around this election. The presidential race remains as close as any in modern history, and the House is still a near toss-up. The Republican Party is likely to take control of the Senate but it is far from a lock.

Historically, the best year for stocks is a preelection year (like 2023), while midterm years (like 2022) are the worst. Election years gain 7.3% on average, but are higher a very impressive 83.3% of the time.

What has happened: The election year has held true to form and then some, with the S&P 500 up over 20% as of Friday’s close.

Historically, stocks have done much better in a pre-election year under a president in their first term (up more than 20% on average), while midterm years for a new president do much worse (virtually flat). That played out this time, with stocks down in 2022 and bouncing back in 2023.

What has happened: This one has certainly held true to form when looking at 2024, with markets shining so far in an election year (2024) under a new president (Biden).

Interestingly, a negative return in a midterm year (like we saw in 2022) has been followed by a higher pre-election and election year every single time. That is 17 out of the past 17 pre election and election years higher after a negative midterm year.

What has happened: Odds favor this data point holding true.

A popular question is how stocks do based on which party is in the White House. Historically, stocks have done better with a Democratic president versus a Republican in power. As with many of these numbers, we would take this with a grain of salt. Despite the tendency to view the president as responsible for the economy, the president alone often has a relatively small impact compared to broader economic forces.

However, it is also interesting to review the results by sticking with the stock market regardless of the political party in the White House:

We have found the make-up of Congress might matter more. In fact, a split Congress has been much better for investors, as stocks incredibly have gained the past 13 times we have had a divided Congress. Those checks and balances the founders put in place might be even more important than we realized.

What has happened: The odds of having a split congress (independent of who is in the White House) are probably slightly better than a coin toss right now, but even if we have a single party controlling both the House and Senate, the majorities are likely to be very narrow, giving the more centrist members of Congress a lot of influence. That will bring some of that spirit of compromise into play even if we have unified government, keeping both parties from giving in to their worst legislative excesses no matter who is elected.

Looking at 2024, we do have a split Congress (Democratic Senate and Republican Congress) along with a Democratic president. Historically that has been a policy friendly mix, and it is fair to say that applies to 2023 and 2024. A narrow Democratic majority in the Senate and narrow Republican majority in the House limited fiscal excesses while allowing some bipartisan legislation to progress.

How investors feel going to the polls always matters, as we have found that if there was a recession in the two years before an election then a president up for reelection usually loses. And if there was no recession, they would usually win. In fact, this has worked every time since Calvin Coolidge back in 1924, who was reelected despite a recession in the previous two years. Coolidge had only become president in August 1923 when President Warren Harding died unexpectedly, and the economy was already rebounding at that point.

What has happened: The economy has been pretty good the last two years. Maybe we see this reflected in Harris still being the favorite to win the popular vote. There should probably be a qualifier that voters are very sensitive to inflation and since prices stay “high” even once inflation normalizes, memory of inflationary periods tend to persist beyond their impact, potentially distorting voters’ perception of the economy.

Markets care less about the impact of this or that president or Congress as much as the cumulative impact of our overall political dynamic. The market’s judgement over the last 45 years is that the overall dynamic has been pretty good. Neither Republicans nor Democrats deserve credit for that. If anyone deserves credit, give it to the electorate, whose slow preference over time has been a thoughtful pragmatism over the excesses of ideology.

A Reminder About Scams

Scams usually start with a phone call, email, text, or another form of communication. The person typically claims to be from an agency or organization you know – or one that sounds like it might benefit you, such as the National Sweepstakes Bureau or a lottery.

The person may know your name and address. They may give you their official title or an identification number. No matter how official they seem, you can be confident it is a scam if the person contacting you:

• Indicates there is a problem with your benefits.
• Asks you to pay to receive a prize.
• Suggests that paying will increase the chance of winning.
• Requests financial information, such as a bank account or credit card number.
• Pressures you to act immediately.
• Tells you to pay using a specific method, such as a gift card or cryptocurrency.

If this happens, remember that the Social Security Administration, the Internal Revenue Service, Medicare, and your bank do not call, email, or text to ask for money or personal information. They do not demand that you pay immediately, and they do not accept payment by gift card, prepaid debit card, cryptocurrency, or another untraceable form of money transfer.

When you suspect a scam:

• Hang up or close the message. Do not respond in any way.
• Remain calm.
• Think back over the call. Write down any personal information you may have inadvertently shared.
• Report the scam. Contact the Federal Trade Commission at ReportFraud.ftc.gov. You may also want to report the incident to your state’s attorney general or your local consumer protection agency.
• Share your knowledge. Talk with family, friends, and neighbors about your experience so they know what to look out for.

When you receive a digital message, no matter how official it seems, do not click on any links. Do not give or confirm any personal information, including your name, birth date, phone number, address, email address, place of birth, driver’s license, passport, or Social Security numbers, bank or other account numbers, and PIN numbers.

Being skeptical can keep you safe. Remove yourself from the situation. Do not share information. If you feel anxious and need to confirm that it was a scam, contact the organization using a method provided on their official website.

How To Avoid Tax Scams

Below is a link to a video provided by the IRS to help avoid tax scams:

https://www.youtube.com/@irsvideos

If you have any questions, please contact us.

The Social Security Lock

The Social Security Lock (also known as the "Social Security Number (SSN) Lock") is a feature provided by the Social Security Administration (SSA) that allows individuals to block electronic and automated access to their Social Security records. This is primarily a security measure to prevent unauthorized or fraudulent use of your Social Security Number (SSN), particularly to help prevent identity theft.

How the Social Security Lock Works:

• Blocking Access: When you activate the lock on your SSN, it prevents others (and yourself) from accessing your Social Security records through electronic means, such as through automated phone systems or online services.
• Protecting Your Information: This feature is especially helpful if you are concerned about identity theft or if your SSN has been compromised. It reduces the likelihood that someone can fraudulently open accounts, apply for credit, or access benefits using your SSN.
• Unlocking for Legitimate Use: If you need to use your SSN for legitimate reasons, such as applying for benefits, you can temporarily unlock or remove the SSN Lock by contacting the SSA. You can also re-lock it after your transaction is completed. __ How to Enable or Disable the Social Security Lock:__
• Visit the SSA Website: Go to the Social Security Administration’s website and sign into your mySocialSecurity account (you will need to create an account if you do not have one).
• Enable SSN Lock: Look for the option to lock your SSN and follow the prompts to activate the lock.
• Disable SSN Lock: If you need to unlock your SSN for any reason, you can do so temporarily by following the same process.

Important Notes:

• The SSN Lock applies to automated access to your records. It does not stop manual processing of benefits or in-person requests for information.
• The lock is a good idea if you are not currently using your SSN often, but you should keep in mind that it requires proactive management, especially if you need to access benefits or financial services in the future.

This tool provides an extra layer of protection but does not replace the need for vigilance regarding the use of your Social Security Number in other situations, like sharing it with third parties or financial institutions.

Corporate Transparency Act

The Corporate Transparency Act was enacted in 2021 and was passed to enhance transparency in entity structures to combat money laundering, tax fraud, and other illicit activities.

Beginning January 1, 2024, certain business entities created or registered to do business in the United States will be required to report identifying information about the beneficial owners to FinCen, the Financial Crimes Enforcement Network. Per FinCen rules, a beneficial owner is an individual or group of individuals who, directly or indirectly, owns or controls the company. Reporting companies typically include:

• Domestic reporting companies: Corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the United States.
• Foreign reporting companies: Entities (including corporations and limited liability companies) formed under the law of a foreign country that have registered to do business in the United States by the filing of a document with the secretary of state or any similar office.

FinCen has updated their FAQs that includes new information about the reporting process, reporting companies, reporting requirements and much more, with the expectation that further guidance will be provided in the future. The updated FAQs can be found here.

Did you Know? This Week in History

October 28, 1965: St. Louis’s Gateway Arch is Completed

On October 28, 1965, construction was completed on the Gateway Arch, a spectacular 630-foot-high catenary curve of stainless steel marking the Jefferson National Expansion Memorial on the waterfront of St. Louis, Missouri.

The Gateway Arch, designed by Finnish-born, American-educated architect Eero Saarinen, was erected to commemorate President Thomas Jefferson’s Louisiana Purchase of 1803 and to celebrate St. Louis’ central role in the rapid westward expansion that followed. As the market and supply point for fur traders and explorers—including the famous Meriwether Lewis and William Clark—the town of St. Louis grew exponentially after the War of 1812, when great numbers of people began to travel by wagon train to seek their fortunes west of the Mississippi River. In 1947-48, Saarinen won a nationwide competition to design a monument honoring the spirit of the western pioneers. In a sad twist of fate, the architect died of a brain tumor in 1961 and did not live to see the construction of his now-famous arch, which began in February 1963.

Completed in October 1965, the Gateway Arch cost less than $15 million to build. With foundations sunk 60 feet into the ground, its frame of stressed stainless steel is built to withstand both earthquakes and high winds. An internal tram system takes visitors to the top, where on a clear day they can see up to 30 miles across the winding Mississippi and to the Great Plains to the west. In addition to the Gateway Arch, the Jefferson Expansion Memorial includes the Museum of Westward Expansion and the Old Courthouse of St. Louis.

Today, some 4 million people visit the park each year to wander its nearly 100 acres, soak up some history and take in the breathtaking views from Saarinen’s gleaming arch.

Weekly Focus

The single biggest problem in communication is the illusion that it has taken place.

George Bernard Shaw, Nobel Prize-Winning Playwright

To live is the rarest thing in the world. Most people just exist.

Oscar Wilde, Poet and Playwright