Macro & Market Musings are weekly insights on Growth, Inflation, Policy and Looking Ahead from Annex Wealth Management’s Chief Economist, Brian Jacobsen. Brian, a frequent contributor on CNBC and Fox Business News, hosts regular updates on the economy and markets. Check our events page for Brian’s next live event.
Growth: First Revenge, Now Relief
Coming out of COVID, the phrase, “revenge spending” became popular. People made up for lost time by eating out, traveling, and experiencing things the government banned them from doing during the COVID lockdowns. That helped accelerate growth. Revenge spending is no longer really a thing, but there could be some relief spending to help growth. Many consumers were reporting that they were putting off trip and big ticket item purchases until after the election. Many businesses reported they were putting off capital investment due to the election. Now that the uncertainty of the outcome is behind us, we could see some decent “relief spending.”
Inflation: Rebound Inflation
When you drop a ball it rebounds, but not to the same height it was dropped from. The bouncing continues until the ball comes to a rest. Analogies from physics are never perfect when applied to the economy, but some analogies are helpful. We saw inflation fall from 9.1% in June 2022 to 3.0% in June 2023, then rebound to 3.7% in September 2023, and then fall to 2.4% in September 2024. Now we’re seeing a bit of another rebound. Each bounce takes a little longer, but doesn’t rebound quite as high. It could take a little while yet to dribble towards 2%.
Policy: Coming Into Focus
Former and future President Trump is building out his list of people to assume various roles in his administration. He is also making it clearer by the day what his first priorities will be when assuming office. There are some things he can do via the power of the presidency, like tariffs, regulations, and immigration. However, other things, like tax policy, will require Congress to cooperate. With a slim majority in the House, the “red wave” of the election does not give him a blank check. There can be a lot of agreement in principle on policy, but what gets passed and when is still an unknown.
Looking ahead: Keep The Wind At Your Back
When investing, we often speak of headwinds and tailwinds. The idea is to find which way the winds are blowing and go in that direction. High market multiples can be headwinds, unless companies now have a clearer path to stronger fundamentals. Deregulation could clear that path for some. Tariffs can be headwinds if input costs rise with limited ability to pass on those cost increases to price sensitive consumers. Those same tariffs can shield some from foreign competition. So, headwinds for some can be tailwinds for others. The winds seem to be blowing more in favor of US small and mid-cap companies, at least for now.
