Executive Summary
- Solid Economic Growth: The Atlanta Fed’s GDPNow estimate for Q3 growth has risen to 3.2%, while unemployment is stable at 4.1%, and inflation is holding at 2.44%.
- Increased Productivity & Savings: Productivity is up, helping keep labor costs steady, and the personal savings rate has risen to 5.2%, providing a cushion for consumer spending.
- Market Reaction: Despite great performance since the beginning of the year, markets may ease as rate cut expectations adjust. Steady consumer spending and lending continue to support growth.
- Election Uncertainty: With a likely split government on the horizon, major legislative changes are less likely. However, significant issues remain, including upcoming tax reforms, Social Security, and the national debt.
- Focus on Policies, Not Promises: As election season heats up, focus on what candidates are actually saying about key financial issues that impact your future. It’s a good time to review your financial strategy in light of these potential changes.
Lower rates, a strong economy—what could go wrong? Oh yeah… there’s an election next month.
In September, the Atlanta Fed’s GDPNow estimate for third-quarter growth was at 2.9%, but by October 8th, that number had climbed to 3.2%. Unemployment sits at a comfortable 4.1%, and inflation is holding steady around 2.44%. By most accounts, things are looking pretty good—so what’s the catch? Well, unless you’ve been living under a rock, you’ve probably noticed all the political ads and endless texts reminding you there’s an election right around the corner. With that comes a heap of uncertainty. But before we dive into the election drama, let’s take a closer look at what’s going on with the economy.
Economic Backdrop
The latest economic updates are a pleasant surprise. Productivity—the measure of how efficiently we’re producing goods and services—is on the rise, with the GDP figures reflecting that. In fact, recent revisions show that incomes have gone up more than originally reported, especially in areas like interest income and government transfers. This isn’t just theoretical, either. It has real-world implications: higher productivity means companies can keep labor costs down while still increasing output. Plus, people are saving more—thanks to the increase in personal income. The personal savings rate was revised from 3.3% to 5.2%, giving consumers a bit more of a cushion.
So what does this all mean for us? Essentially, we’ve got a strong economy that’s being driven by innovation and adapting to challenges like labor shortages. Jerome Powell himself has pointed out that these higher savings rates could keep consumer spending healthy, which is a positive sign. In other words, despite the headlines that may suggest otherwise, we’re in a pretty good spot. The economy is showing resilience, making strides in productivity, and giving people a little more room to save. It’s a solid foundation to build on, even in the face of uncertainty.
Recent Market Performance
Now, let’s talk markets. The Fed’s anticipated interest rate cuts this year helped boost smaller companies and sectors sensitive to rate changes, like utilities and real estate. This summer, many were betting on continued rate cuts from the Fed because they thought the economy was showing signs of slowing down. But with economic data exceeding expectations, investors are now adjusting their outlook for rate cuts. Just last month, there was a 50% chance that interest rates would drop to around 4% by year’s end. Now that estimate is down to 0%, and Treasury yields have crept back up, reaching over 4% from a low of 3.63% in mid-September.
Why does this matter? Higher Treasury yields generally mean that investors will demand a higher return from stocks, and it also increases the cost of doing business, which may cause some market hesitation. I wouldn’t be surprised of a pause in the market as we press closer to the election. That said, I’m still optimistic that the market will continue to perform well in the long run. Rates may not fall as fast as some had hoped, but as they normalize, it should give companies and consumers more room to grow. With a solid savings rate and a strong labor market, consumers are likely to keep spending, banks will keep lending, and businesses will keep expanding—all of which bodes well for the market in the long run.
The Election
Now, onto the elephant in the room—the upcoming election. I’ve been through four presidential cycles in this business, and it’s always the same story: candidates promise economic miracles, while warning that their opponent’s plans will doom us all. The reality? The president has far less control over the economy than they’d like you to believe. Our government is designed with checks and balances, which means the president needs Congress to actually get anything done.
Right now, the polls are showing a toss-up for the presidency. Many analysts predict that we’ll end up with a split government, with Republicans possibly taking the Senate and Democrats taking the House. For the markets, a split government is typically seen as a good thing because it reduces the likelihood of major legislative changes that could disrupt the current momentum.
But make no mistake, there are some big issues that need attention. The tax cuts passed in 2017 are set to sunset in 2025, which could impact estate planning for many of you. If Congress doesn’t act, the estate tax exemption will revert to pre-2018 levels, which may reduce the amount you can pass on tax-free. Then there’s Social Security and Medicare, both of which need significant reform to remain sustainable. And let’s not forget the national debt and budget deficits, which continue to grow. All of this means it’s important to pay attention to what the candidates are actually saying on these issues—and to vote accordingly. And while it may be tempting to get swept up by celebrity endorsements and the excitement of campaign season, remember that this is about policies that could have real impacts on your financial future. Don’t let the hype or flashy sound bites distract you from what matters most for you and your family.
As always, I’m here to help you navigate these changes. If you want to discuss any of these topics in more detail or see how they might affect your financial plan, just say the word. This is an important time, not only for our economy but also for our role as engaged citizens. So, stay informed, participate in the process, and make sure your financial strategy stays on track no matter what the election season brings. Reach out if you’d like to review your plan together—I’m here to help you keep moving forward, whatever the outcome! You can reach me at (215) 348-3176 or ricardo@Paragon-wealth.com.
About Ricardo
Ricardo J. Ferreira is the Portfolio Manager at Paragon Wealth, a firm he co-founded with Charlie McNamara, III, and Phil Rosenau. With a passion for finance and a talent for solving complex financial challenges, Ricardo leads the firm’s investment strategies, ensuring clients receive personalized and forward-thinking solutions.
A decorated U.S. Navy Veteran, Ricardo served at N.A.E.S. Lakehurst and aboard the USS George Washington, where he worked in aviation support. After his military service, he studied economics at Liberty University and began his financial career at Prudential Financial, where he met his future partners, Charlie and Phil.
Outside of work, Ricardo enjoys spending time with his family. He is married to Tina, owner of Main Street Accounting & Tax, and they have two children. Active in his community, Ricardo participates in various local events and serves on the finance council at St. Jude Parish in Chalfont. A passionate runner, he can often be found competing in local 5k and trail races on the weekends. To learn more about Ricardo, connect with him on LinkedIn.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Any securities mentioned here are for informational purposes only and are not recommendations to buy or sell any security.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that the strategies promoted will be successful.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. Paragon Wealth Management and Great Valley Advisor Group are separate entities from LPL Financial.