With just 10 days to Election Day, the race is still tight, but there is an increasing probability we might get a republican sweep (White House and the two chambers of Congress). If you look at history, a republican sweep has been the best results for markets, compared to alternative scenarios, particularly in the first two years, until mid term elections. This time however, investors are concerned about a potential sweep; as you can see below, 47% think it will be negative for the S&P500 and 66% think it will be negative for High yield bonds. And the reason appears to be that if there is no balance of powers between the president and Congress, debt will continue to grow and inflation will reappear, this time with deeper negative consequences than the ones we saw during 2022. The irony here, is that inflation is what the country’s finances need, to suppress the value of the debt, but it will bleed the consumer, which has already drained her savings with price increases over the last 4 years.
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