Range's take on the market and economy post-election

I wanted to share some thoughts on last week's presidential election, the markets' reaction, and what it might mean for your money. As your trusted partner in navigating financial decisions, I believe it's important to provide context around recent events and their potential impact on your portfolio.

Market Response & Economic Outlook

The markets were up this past week, and I'm not surprised. This has less to do with the actual election result and more with the underlying economic situation. The data shows that presidents don't actually control markets – which is fantastic news for all of us. Markets have seen double-digit returns under eight of the last nine presidents, regardless of party.

We believe the economic setup right now is very good:

• The labor market is in a good spot. People have jobs. Compared to historical standards, we're at very low unemployment
• Consumers are spending. Incrementally, they're spending more, so consumer demand is moving in the right direction
• GDP has been up about 3% over the last couple of quarters, which is healthy
• Most importantly, this is all happening as we're going into a rate-cutting cycle

The Fed is starting to turn from foe to friend – they've hiked interest rates aggressively and tried to curb growth in their efforts to fight inflation. They've been fighting the economy, and now they're actually easing and taking some pressure off. This elusive soft landing that we've all heard about has been playing out. And with the election out of the way, a lot of uncertainty has been removed as we know the general playing field for the next four years.  That's really what markets are cheering right now.

Federal Reserve & Interest Rates

The progress we've made on inflation is hard to overstate. The latest readings on inflation are somewhere in the 2.3 to 3.3 percent range, depending on the data point you want to look at. It wasn't that long ago when we were seeing CPI readings of 9%! When we had inflation hit those levels in the early 1970s, it took us a decade to get to where we are now – we've gotten there pretty quickly.

Yet we're still in restrictive territory in terms of how high rates are. The federal funds rate is still above 4.5% compared to inflation that’s well below that.. So the Fed could still lower quite a bit before reaching a “neutral” rate.

The Fed is doing a victory lap and you can hear it in Chairman Powell's comments:

• He points out that wage gains have eased
• He reiterates that unemployment is still low but has moved higher in recent months 
• He even mentions they wouldn’t be concerned if they see slight blips of hotter inflation in the coming months

They had previously felt the labor market was dangerously tight, but they don’t have that sentiment anymore.

Looking ahead, we expect (and hope) the Fed remains independent from politics.  But political pressure aside, if economic data points come in weak, we think the Fed could act more aggressively than people think and bring down rates faster. If you look past maybe the middle of next year when rates are 1% below where they are today, closer to 3.5%, it probably becomes a little bit more of a question as to where we go from there. This last mile of inflation, trying to get back to 2%, may be harder than we think.

Portfolio Considerations

We maintain our conviction that US stocks and bonds remain among the most attractive investment opportunities globally. Our portfolios typically maintain 60-70% exposure to US markets. However, we believe diversification remains crucial: 

1. Geographic Diversification: Historical data supports having geographic diversification in your portfolio:some text
   • Counter to what many people would have expected, during the first Trump presidency, both developed international and emerging market stocks actually outperformed the S&P 500 in the first 12 months post-inauguration
   • Over longer periods of time, we’ve seen U.S. and international stocks move in cycles of relative performance.  Since 1975, the outperformance cycle for US vs. international stocks has lasted an average of eight years.  We’re currently nearing 14 years of outperformance for U.S. stocks, which tells us it’s prudent to maintain exposure outside of the U.S. 
2. Market Cap Diversification: Domestically, while the large caps of the S&P 500 have had phenomenal performance over the past two years, we think it’s also important to ensure exposure to smaller companies that:some text
   • Are less exposed to global supply chains thereby less negatively impacted by tariffs
   • Could benefit more from potential corporate tax reductions under the Trump administration
   • Often have higher debt loads and could see interest tailwinds from lower rates
   • Are expected to grow faster than the components of the S&P 500 over the next two years

If you’re overly exposed to equities and have been waiting to rebalance your portfolio, recent market moves could also present a good opportunity to get to the right allocation consistent with your long-term goals and risk tolerance.  Equity markets are at highs while bonds have moved lower in price….you have an opportunity to sell high and buy low.  

Looking Ahead: Tax and Policy Changes

It looks likely that the Tax Cuts and Jobs Act will be extended in some form under the new Trump administration, removing some uncertainty about whether individual tax rates are moving up.  However, several additional proposals are under consideration that could impact your long-term financial planning:

• Reduction to federal income tax rates
• Possible adjustments to Social Security income taxation
• Proposed increases to home care tax credits
• Modifications to itemized deductions, including state and local tax caps

How Range Can Help

As these policies unfold, we're here to help you:

• Recommend and implement an investment portfolio consistent with your goals and financial profile
• Assess tax planning strategies as the tax code is updated, including optimal contributions for retirement, healthcare and education
• Gain visibility into your cash flow taking into account changing interest rates and taxes, and plan for large purchases like housing
• Make sure your estate plan is in order and you are fully prepared for retirement

Key Takeaway

The Trump administration is stepping into an economy that is in good shape, with indicators pointing toward a soft landing. The future President and the Federal Reserve want to help stimulate the economy even further, with lower taxes and lower interest rates. Our recommendation remains consistent: maintain a long-term view of investing, stay invested according to your risk profile and goals, and work with us to navigate policy changes that could impact your personal financial situation.

If you have any questions about your portfolio or would like to discuss these topics in more detail, don't hesitate to reach out to your Range advisor.

Best regards, Taresh Batra VP of Finance and Investments Range

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