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If core inflation data due out on Thursday in the US show a continued slowdown in inflation, this should seal the deal.
Nothing excites the market bulls more than a fall in rates. Indeed, the anticipation of US interest rates cut has been a major driver of equities over the past year and a half.
Nothing excites the market bulls more than a fall in interest rates. Credit: AP
Whether the market will be less enthusiastic when the rates actually fall – when anticipation is replaced by reality – will be interesting.
The November election will inject some market uncertainty but maybe not as much as it has in the lead-up to previous elections.
In this instance, the markets know both candidates as sitting presidents. Plus, neither winner can remain in the job for more than one term.
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Admittedly, there has been additional uncertainty since June 27 when President Joe Biden performed so poorly during the first presidential debate that some Democrats rumbled loudly about replacing him.
But his refusal to budge and the unwillingness of the party to destabilise has meant there is newfound certainty that he will contest the election against former president Donald Trump.
The difference this time is that the market has already had experience of what Trump will do on the economic front. And while the experts fear his xenophobic ‘made in America’ trade policies will ultimately damage the US and world economies, the near-term possibility of industry deregulation should boost equity markets – as it did when Trump won in 2016.
Ditto for Biden in 2020. When he came to power, the equity markets also took off even harder over the next couple of months.
In both cases, the skittish markets leading up to the election were overtaken by bulls once the victor had been called.
Earnings is the other force that will push markets over the coming months. The half-yearly reports will begin soon and will need to be healthy enough to support the strong share price growth that big tech stocks, in particular, have experienced.
US companies will have to deliver the biggest rise in profits in more than two years to avoid disappointing Wall Street analysts. That will be quite the challenge.