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Where Does This Leave Us?

I am just returning from a vacation in Italy and enjoyed traveling to the Italian countryside and all that my heritage has to offer. My responsibilities never really allow me to fully unplug because the markets and geopolitics are always evolving, and their interconnectedness meaningfully impacts our decision-making on portfolio structuring.

Mike Prinzivalli, our Senior Credit Trader, shares my love of the markets and is always trying to decipher economic and political happenings and their impact on markets and our portfolios. This past week, Morgan Stanley published their survey on consumer confidence in the U.S. and Mike shared the results with our team. Interestingly enough, the outlook has brightened with 42% of consumers expecting the economy to improve in the next six months. This is interesting because the Fed has started its cycle of cutting interest rates because it believes inflation is cooling and its primary concern is now focused on maintaining the health of the employment market. For what it is worth, many of the consumer surveys are often highly correlated to the price of gasoline. As gas has fallen recently, consumers may be more upbeat. Also, the recent decline in interest rates has caused a modest spike in mortgage refinancing. More money in the pockets of consumers will certainly brighten their mood as well as provide more money to spend.

As you delve into the report there are, in our opinion, five key takeaways. First, citizens remain concerned and focused on the outcome of the Presidential election. Each side has its’ priorities, however, neither party has illustrated any serious concern or cogent plan of how to deal with the state of the mounting debt and budget deficits. The second takeaway was interesting in that respondents had a more upbeat view of the U.S. economy and belief that household finances are improving. The aforementioned confidence plays into the third takeaway which notes that consumers plan to travel during the remainder of this year. The fourth item was that consumers reported higher spending for back to school. Finally, respondents were asked about their key election issues and cited the economy, healthcare, immigration, and taxes as the main culprits.

I have always felt that all of us have a rational economist within us and we interpret the economic information in front of us. I am also adherent to behavioral finance and that our individual financial circumstances will drive our consumption and investment decisions. For example, if we are confident in our job, have a healthy bank account, and have confidence in the future, we will have a higher propensity to consume and invest. The opposite holds true as well.

Where does this leave us? The election is extremely close, the Fed seems ready to be accommodative and consumers are regaining confidence. If inflation continues to decline and the consumer remains healthy, we could be on a path for growth. The most serious issue is the outcome of the election and whether we, as a country, come together to figure out the debt issue. More to come.  

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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