SB Capital Insights

8/19/2024

Good morning. 

Markets have largely recovered from losses caused by recession that sparked a massive selloff. The S&P 500 rose by 3.9%, the strongest week this year. Major U.S. indices continue to rally along with Japan.

U.S. economic data shows a resilient economy.

• Headline CPI for July came in below expectations, at 2.9% YoY, close to the Fed’s 2% target.

• U.S. Consumer

(Consumer sentiment rose for the first time in 5 months, meaning consumers feel more confident about their finances and are willing to spend more.)

• Retail sales grew by 1% MoM, beating expectations.

• Job market

• Weekly jobless claims slowed down, coming in at 227,000 which indicates the job market is not in the midst of a rapid decline.

This data is strong evidence that the U.S. economy is not facing an imminent recession. Employment data in tandem with slowing inflation will embolden a September rate cut, promoting greater growth.

The U.S. and its counterparts are preparing for increased conflict in the Middle East. A wide scale regional conflict between Iran and Israel could have ripple effects throughout the global economy. For example, surging energy prices and the closure of trade routes would be inflationary forces. 

Keep reading as we explore key drivers of the equity market, gold’s rally, and Trump's proposed economic policies.

Markets 

• Every sector in the equity market posts positive returns with technology leading the large. Nvidia posted the strongest gains of 18.93%, which translates to an increase of 382 billion in market capitalization. 

•  Gold, historically a store of value, has pushed all time highs over the course of last week. Many factors have led to increase in value, including geopolitical risk, monetary policy outlook, and the budget deficit to list a few. 

A look at the proposed economic policies of the candidates

Part 1: Trump

Inflation and the economy remain the top issues among voters. Trump has made fighting inflation a major part of his campaign. “We will drive prices down and make America affordable again.” 

Tariffs

• Trump promises sweeping tariffs that he says would bring more manufacturing to the states. 

  • “We’re going to have 10 to 20% tariffs on foreign countries that have been ripping us off for years.” 

  • For consumers this could entail 10 to 20% higher prices on all goods and up to 60% for Chinese exports.

His proposed goal: Increase manufacturing jobs and reduce the U.S. trade deficit

Critics: Tariffs would cost the average American $1700, disrupt supply chains, and overall be a major inflationary force.

Tax cuts

• Trump wants to end taxes on tips.

• Tax cuts passed in 2017 under the Trump administration will expire in 2025.

• This amounts to an estimated $3.7T in individual taxpayer money.

• Trump is promising to renew the cuts and even potentially expand them.

His proposed goals: Support economic growth and increase pay

Critics: Tax cuts only benefit the rich; lack of revenue would increase the federal deficit.

Energy

Trump wants to expand U.S. energy production, particularly fossil fuels, and become independent from other nations as suppliers.

• Reduce environmental regulations that he believes prevent economic growth

• Expand energy exports 

His proposed goal: Increase fossil fuel production to expand the U.S. economy, create more jobs, and increase foreign influence

Critics: The U.S. does not need to be energy independent and is at record levels of production; Trump’s plan would harm the environment and slow the transition to renewable energy.

Deregulation 

• Rolling back environmental regulations

• Financial deregulation 

  • Decrease capital requirements to promote lending

  • Allow for increased speculative trading to boost liquidity and profitability

• Broad cuts on corporate regulation

  • Safety standards

  • Worker entitlements

His proposed goal: Trump believes government intervention is slow and costly to the economy; he would decrease regulation to allow companies to grow at a faster rate.

Critics: Reduced protections for workers; financial instability due to less regulation of banks

End of Biden economics

• Trump has focused on rolling back almost all aspects of President Biden's economic agenda. 

  • Roll back environmental regulation

  • Fight against increased capital requirements

  • End of IRA: Cut back on loans and tax incentives aimed at building more advanced technology, especially relating to renewable energy

Conclusion: The economic agenda of a second Trump administration would reflect an emboldened Trump doubling down on the ‘America first’ policies from his first administration. 

On September 10th the candidates will face off and present their contrasting economic agendas. The American people can decide for themselves what each candidate would mean for their economic situation. Stay tuned for Part Two next week.

What to look out for this week

• The Fed in the spotlight: Investors will be looking out for sentiment from FOMC members on a September rate cut. Multiple members will be delivering scheduled addresses and all eyes will be on Powell when he speaks at the Jackson Hole economic symposium Friday.

• Kamala Harris will speak at the Democratic Convention this Thursday.

• Earnings to look out for: TD Bank, Target, Snowflake, Zoom Video, Palo Alto Networks (Source:Investopedia)

We are two college students on a mission to immerse ourselves in the financial industry. We are eager to learn more and make new connections. Our goal is to share exciting and informative content that provides a broad picture of current events and offers valuable insights.

Authors: Ben Banchik, Zachary Singer

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