Labor Market
US fiscal, monetary, and foreign policies are unlikely to deliver any dovish surprises for investors in Q4, due to the impending government shutdown, persistent inflation, and instability among OPEC+ and China.
While we are sympathetic to the view that the Fed could temporarily achieve a soft landing, we are skeptical that it could stick that landing for very long. Stocks could strengthen into year-end, with small caps potentially leading the charge. But the rally will fizzle out next year as the global economy begins to sink into recession.
Stocks perform worse in presidential election years than average years, especially in the first half of the year, and especially if the ruling party ends up falling from power. Investors should take risk off the table until the unemployment rate peaks.
