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A THANKSGIVING NOTE

It has been a very busy time at Knights of Columbus, so I have not had the time to write a post. This morning (November 25th) the stock market continues to climb as the S&P is up about 0.4% today and 25.7% year-to-date[1]. The 10-year ran up as high as 4.45% after the election and is about 4.30% as I pen this essay[1].

The market has been looking for clues on the path of inflation and employment while also keeping a watchful eye on the potential cabinet appointments in the upcoming Trump administration. Scott Bessent is the President-elect’s pick for Treasury Secretary and the market is hailing this pick because if his reputation, his desire to make the Trump tax cuts permanent, and his general view that the time is now to deal with the excessive budget deficits and stifling debt. I personally applaud both because we got into this mess as both parties have done a horrible job at considering the future ramifications of our heavy debt. Further, we cannot continue to take our annual operating deficits and simply add them to our burgeoning national debt.

Earlier this year, many pundits were discussing a recession and arguing about the depths that a recession could reach. We are back, seemingly, to discussing a soft landing. Jobless claims remain low and U.S. growth continues to trend in a slow-growth pattern, but growing nonetheless. How are we thinking about all of this? As students of economic history, we know that the primary bout of inflation is often followed by a second round. To us, the second round will largely be driven by the policies that come forth from the new administration as well as the path of consumer spending and aggregate employment.

As our economy is heavily driven by consumer spending, how consumers are feeling will dictate the level of spending. It is for this reason that we are watching the consumer sentiment gauges. Employment is important because it is people with jobs that are doing the spending. That said, if people with jobs are feeling less confident due to economic news, geopolitics or policy coming out of Washington, these types of inputs could either instill confidence or fear. From a behavioral finance perspective, if consumers are fearful they may curtail discretionary spending, and you may also see personal savings rise from current levels.

We are watching the tug of war between inflation and employment to understand how the economy may proceed from here. The incoming administration is seen as pro-business, pro-deregulation, and focused on driving the American economy at the expense of globalization. How we handle the budget and a serious attempt to manage the federal debt will have an impact on returns. For example, a focus on cutting government spending and attempting to bring down the national debt are long-term positives. However, a decrease in government spending can be seen as counter cyclical to the economy and this can help lower inflation (good for bonds) and slow economic growth (not so goods for stocks). More to come, but these are some thoughts for a shortened holiday week.

I wish all of you and your families a Happy Thanksgiving!

[1] Source: Bloomberg

This commentary has been prepared by Knights of Columbus Asset Advisors (“KoCAA”) for informational purposes. Nothing contained herein should be construed as (i) an offer to sell or solicitation of an offer to buy any security or (ii) a recommendation as to the advisability of investing in, purchasing or selling any security. Any opinions and information expressed herein reflect our judgment and are subject to change without notice. Certain of the statements contained herein are statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (1) general economic conditions, (2) performance of financial markets, (3) interest rate levels, (4) increasing levels of loan defaults, (5) changes in laws and regulations, and (6) changes in the policies of governments and/or regulatory authorities.

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