Good morning! It was great to meet some of you in person Friday at the Crypto Investor Day conference in New York City.

That was just what I needed before a busy weekend watching Donald Trump and Kamala Harris’ latest interviews, speeches, and comments.

With a new White House around the corner, this edition unpacks what happens to stocks during election cycles.

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Presidential returns

The US presidential election is a week away and the stock market knows it. 

So far this year, the S&P 500 has climbed nearly 23% — conforming to investing and political history that shows equities tend to go up during election years.

What makes 2024 unusual, though, is that stocks have outperformed even for an election cycle. 

A combination of macro factors — namely the expectations for more Fed rate cuts — have fueled the best election-year stock-market in decades. 

Equities seem to be pricing in higher odds of a Donald Trump victory compared to Kamala Harris, according to David Miller, chief investment officer of Catalyst Funds. 

That said, investors tend to be apolitical in how they deploy their cash.

“Historically, the stock market has done well under both Democrats and Republicans,” Miller told me.

In a note to clients Sunday, Morgan Stanley analysts also alluded to the so-called Trump Trade.

(Depending who you ask, it’s something along the lines of a bet on a softer regulatory environment and larger corporate tax cuts.) 

“Markets could be putting greater emphasis on the revival of ‘animal spirits’ driven by expectations of regulatory easing, which is hard to define or quantify,” the analysts said.

The S&P 500’s returns in 2024 have trounced the six other presidential elections in the 21st century, more than doubling those seen in 2012, the second-best election-year stock market of this millennium. 

Again, politics aside, the stock market rarely goes down when it’s time to vote for a president.

Since 1950, the S&P 500 has only turned negative during two election years. 

History suggests the benchmark index could keep rallying after the election, too.

The benchmark index has seen a median return of 15.8% in the calendar year after Americans vote for the White House.

“While we may continue to see volatility rise into the election, we think this could be an opportunity to add to equity risk or to rebuild any allocations that may have been de-risked ahead of the election,” said Anastasia Amoroso, chief investment strategist at iCapital.

Comments or feedback? Reply directly to this email or let me know on X @philrosenn.

Elsewhere:

📊 Earnings pick up this week. Quarterly reports from Google, Apple, Microsoft, Amazon, and Meta are all due in the coming days. High expectations for the Magnificent Seven suggest that this one week could determine how the market moves over the coming months. (Opening Bell Daily)

🏦 The Fed’s aiming for a target it can’t see. Policymakers have been attempting to secure a soft landing for the economy by nailing the so-called neutral rate, or R*. The problem is no one actually knows what that magic number is — it’s theoretical, academic, and ever-changing. The Fed’s own committee remains divided on how low rates will go. (Barron’s)

💵 Goldman Sachs’ bleak outlook has made waves. Experts have pushed back on the bank’s forecast for a decade of weak returns. Teams from JPMorgan and DataTrek Research, for instance, expect more far higher annual returns than Goldman. Either way, it remains true that A) Stocks tend to go up, and B) It’s very hard to make specific long-term calls. (TKer)

Rapid-fire:

• The bond market could see heightened volatility in the next week as the election is sandwiched by jobs and inflation data and a Fed meeting (Bloomberg)

• Nvidia has a larger market cap than most G7 countries (Yahoo Finance)

• The US government is investigating crypto giant Tether for potential violations of sanctions and anti-money-laundering rules (WSJ)

• Big Tech has poured big investments into nuclear reactors for the promise of cheaper, more efficient energy (Yahoo Finance)

• The US dollar’s purchasing power has been cut in half in a single generation (Pomp Letter)

Election odds according to Kalshi, the biggest US prediction market:

Last thing:

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