On-screen text: Election 2024: A conversation about policy, the economy, and market implications. September 2024. Securities and insurance products and services are not FDIC or any other government agency insured, are not bank guaranteed, may lose value.
Visual Description: Oscarlyn Elder, Keith Lerner, and Dan Clifton sit at a news-style desk in a studio. Oscarlyn Elder begins speaking.
Oscarlyn Elder: Hello, and welcome to a special event from Truist Wealth. Election 2024, a conversation about policy, the economy, and market implications. I'm Oscarlyn Elder, co-chief investment officer for Truist Wealth. My team’s responsible for selecting and analyzing the investment solutions and strategies that your Truist Advisor uses in creating your portfolio. As we've been out talking with you, we've heard that November's elections are top of mind. Today's conversation has been shaped by the questions that we've received from you. Our goal is that this information helps you understand the landscape better. As always, we appreciate you joining us. Joining me is Keith Lerner, co-chief investment officer and chief market strategist.
Oscarlyn Elder: Keith and his team guide Truist Advisors and clients through all market environments. They provide timely investment advice with the objective of helping clients achieve their long-term wealth goals. His work is highlighted regularly in financial press, and you'll often see him on Bloomberg TV, Yahoo finance and CNBC. Also joining us is Dan Clifton. Dan is a partner and head of policy research for Strategas Securities.
Oscarlyn Elder: Dan evaluates the financial market implications of policy and political developments. This includes analyzing tax, trade, infrastructure, health care, energy, defense, and other policy initiatives to determine how public policy changes impact the economy and financial markets for investors. Dan leads the Washington policy research team for Strategas which has been ranked as one of the top policy research teams on Wall Street for 15 consecutive years, according to Institutional Investor. Dan is also a top ranked analyst in the category of tax and accounting policy.
Oscarlyn Elder: Currently, Dan is ranked as the top independent research analyst on Wall Street across all research verticals. According to the same Institutional Investor survey. Dan's research on the interaction between policy, elections and financial markets is widely cited in the media, and Dan is a frequent guest on CNBC, Bloomberg and Fox business. So, Dan, let me say first, thank you so much for joining us today.
Dan Clifton: Thank you for having me. Very exciting election in front of us.
Oscarlyn Elder: Yeah. Well, we've got a lot to talk about. There's not a shortage of content to cover today. And we just really appreciate your expertise in the time that you're taking to be with us and our clients. Let's start off by discussing your take on the current economic and political environment in the US.
On-screen text: At a time when economic volatility is creating political volatility
Visual Description: A graph titled “Real U.S. GDP growth has broken from its trend since 2008 of U.S.” Line chart indicates that GDP growth rate over roughly the last 15 years has slowed to 2% from 3%. A previous below trend period from 1981 to 1982 is highlighted. The chart also shows that the result of that slowed growth is a U.S. economy that is $4.4 trillion smaller. Source BEA, Strategas.
Dan Clifton: So, I think before we talk about the actual specifics of the 2024 election, it's important to understand the political environment that we're operating in for the past 15 years or so. Our view at Strategas has been that economic volatility translates into political volatility. And what we mean by that is that on average, the US economy has grown by about 3% per year. That went on for 50 years. And then 2008 came and we had the financial crisis and the U.S. economy transitioned from a 3% growth rate to a 2% growth rate, and it stayed there for the last 15 years. Now, a lot of my clients will say to me, Dan, what's the difference between 3 and 2%? Well, it's enormous. it's it might sound like 1%, but it's really about $4.4 trillion of less wealth for American households. And our view is that American households know that their standard of living is not rising as fast as it normally would. And they're demanding political change. And the reason why we know that is because we've had nine federal elections since the financial crisis started, and the voters of this country have removed the party in power in eight of those nine elections. So we've tried all Republican, we've tried all Democrat. We mixed it up. We rolled the dice with Trump. None of those combinations have been able to get economic growth higher. And we've seen political change. Is this normal? Absolutely not. We had to go back all the way to the reconstruction period, post-Civil War to see this level of political volatility. And my sense is we're going to get some change, again. This type of cycle, whether that's in the Senate or the House or even in the White House, is possible this time around. And then compounding that is that in 2004, we moved to what's called early voting. And that changed the entire voting structure of how we vote for presidents of the United States. The good news is that voter turnout is way up since 2004 and goes up every cycle. The bad news is that the campaigns now have 30 or 45 days to get their voters to the polls. They know exactly who their voters are and everybody's voting. And so that means that the margin separating a Republican and Democrat in the Electoral College is about 100,000 voters in you know, a handful of states. And that compounds that level of political volatility moving forward. So the sum of this is I anticipate we're probably going to have a close election unless something meaningfully changes: a major economic event, a major geopolitical event, or when the candidates mess themselves up. And then you look at Congress, and Congress is going to be separated right along those 50-50 lines as well. It might be 52-48 in the Senate or 51-49 in the Senate. So we are truly a 50-50 electoral system here in the United States. And we are seeing a very close election today.
Oscarlyn Elder: So basically, a hangover from the great financial crisis, right? We have this extended hangover of economic volatility, volatility that's feeding into political volatility. Then you mix in a little social media, has also inflamed it. But the roots go back to that. The economic volatility.
Dan Clifton: Absolutely. And the slower trend growth rate in the United States, by the way, that doesn't impact the stock market or anything like that. But it's affecting voters and it's affecting their incomes. And that's where you started to see this dramatic change and one of the ideas you see is you see this kind of growing populism building both on the progressive side and on the conservative side. And it's not just in the United States, it's globally you're seeing that. And that's a function of just slower economic growth.
Oscarlyn Elder: Well, now that you set the stage with that foundational information, let's turn to how you're assessing how the presidential candidates are likely to perform on Election Day.
Visual Description: Strategas’ framework for analyzing the 2024 presidential election is displayed. It includes three lists: campaign narrative, economic outlook and swing states.
Dan Clifton: Yeah. So, listen, it's not possible for me to go, “Oh, it's going to be a close race.” I’ve got to have an opinion and we’ve got to figure out how to get that. And so we've built a framework for understanding the election. The first question that we ask is, “Is it a referendum on the Biden-Harris administration, or is it a choice between Donald Trump and Vice President Harris?” This is really important because in 2020, the election was a referendum on Trump. It's really hard to win when it's a referendum on you. And he ended up losing. In 2012 when President Obama was running for reelection, he made it a choice. He made it a point to voters that it would be risky to change here because the economy was getting better. George W. Bush in 2004 made the argument it would be risky to change with John Kerry, as in a post 9/11 world, right? So, they made it about “The alternative is worse than me. You may not like me, but that alternative was worse.” And for seven months, this election was a referendum on Joe Biden. And as Harris got into the race and Biden got out of the race, what we've seen is that it's now become more of a choice. And the Trump campaign probably thought, “Hey, she's just as unpopular as Biden. And, you know, we're going to have the same race.” And what you've seen is her unfavorable ratings have really, really improved. And what that told us was that voters were more concerned about Biden's age and competency level than they were about policy, per se, because as soon as he got out, his approval rating started going up as well. So number one, it's now a more even race between a choice between the two candidates. And that's why you're seeing the probabilities of who can win change since Harris got in the race. The second, which I think is really cool, is that Bill Clinton is very famous for saying all elections are referendums on the economy. It’s a very famous saying, and we try to measure that and quantitatively show it. And so our big indicator is what we call the Misery Index. The Misery Index is from the 1970s. It basically adds up the inflation rate and the unemployment rate. And it has predicted 15 in the past 16 presidential election winners and every presidential election winner since 1980. It's a very simple formula. If misery is higher year over year come October, the incumbent party loses. And if misery is lower year over year, the incumbent party wins.
Visual Description: A graph of the Misery Index over the last year displays that misery levels are just below the threshold for the incumbent party to win. A second graph titled “Trump’s lead over Harris among voters on economy & crime is shrinking” compares poll data as follows: economy and employment, 11 point lead for Trump on July 22-23 poll dropped to 3 point lead for Trump on August 23-25 poll; crime and corruption 5 point lead for Trump on July 22-23 poll dropped to 0 point lead on August 23-25 poll.
Dan Clifton: Don't you know that we can't be any higher than 7.35% for the incumbent party to win? We're right at that level with the September jobs report that just came out. And we're right at 7.1. So, you're talking about two-tenths of 1%, but it is below that level. And what you see is that inflation is coming down faster than the unemployment rate is going up. It's primarily being driven by gasoline prices. And that is keeping Harris competitive. And what you've seen is that Trump's advantage on the economy has somewhat narrowed. Now, there are a couple of other indicators that we look at that I think are really cool and you could track at home. The S&P 500 has been a pretty good predictor of election results 90 days before the election. Stocks are higher, the incumbent wins, if stocks are lower, the opposition party wins. The dollar. The dollar's weaker in that 90-day period. And they're pretty robust. I mean, stocks aren't a perfect predictor, but they've predicted 83% of the presidential election winners. So that again gets back to the point that, yes, a woman's right to choose and immigration are really important issues, but the economy still matters at the end of the day. And then third is what's happening in the swing states. Let's face it, there are seven states that are probably going to decide this election. And within those seven, there are probably 3 or 4 that are really going to matter. We break up those states into two categories. One, we call the Blue Wall states: Michigan, Wisconsin and Pennsylvania. And then we have the southern suburban state strategies: North Carolina, Georgia, Arizona and Nevada. And don't you know, if you just took the current polling today, Donald Trump is winning in the southern suburban states, not by much, but he's winning in those states. And Harris is winning in the blue wall states, also not by much. Every single one of those seven states is within the margin of error. And let's face it, the polling has not been very good in America for the last 15 years.
So if you just look at the polling today and said, “Is the polling right and 100% right?” Harris would win almost in identical manner as Joe Biden did in 2020. If you have the same polling error that we had in 2020 that underrepresented Trump’s share, Trump would win the Electoral College with over 300 Electoral College votes. So we're probably sitting somewhere in the middle of that. And what you've seen over the last two weeks is you've seen this slight edge to Trump in the betting odds and a slight edge in some of the election models, because Pennsylvania has become so stubborn over Vice President Harris. And what I mean by that is that there have been about six polls in the last week or so, and she's not winning in any of those. And so without Pennsylvania, her math gets really, really hard. And that's what people are going to be watching. And by the way, this is what shows up in our daily policy life is that that's why you see Vice President Harris trying to move to the center, trying to say, “Well, I'm not really for 44% capital gains tax. I'm for 33% capital gains tax.” That's the main line of Pennsylvania she's targeting. “I'm against the US Steel-Nippon merger, which Biden indicated he's going to nix.” That's the Western Union worker there. So you could see the levers are being pulled to be able to get Pennsylvania. And I think that that's becoming the key state. If she can't win Pennsylvania, she will make a very aggressive attempt to try and win Georgia, North Carolina and possibly Arizona or Nevada to try and fill in those pieces together.
Oscarlyn Elder: Yeah. So kind of bottom line is, we've gone from a referendum race to a choice race and it's really close.
Dan Clifton: It's really close.
Oscarlyn Elder: It really is very, very close. And it's going to be intense between now and Election Day. We know that. And folks can watch how the strategies are playing out in real time.
Dan Clifton: Yep. And you know, I call it the September to remember that we're in. And as you start to see these catalysts develop, you have the debate. You have the Trump sentencing. You have the Fed cutting rates. These are all going to have major catalysts for the election itself. And they're all combining at the same time, which makes it so interesting. But if somebody can tell you that they can forecast what 75,000 voters are going to do in three states on a voting base of 160 million, that's rounding error-type stuff. And, you know, I think we’ve got to analyze as these events go through.
Keith Lerner: Okay, I thought I had a tough job. Sounds like you have maybe a tougher one than me.
Dan Clifton: By the way, your job is as tough as they come, and you’ve got to do it every day. I only have to do it every four years.
Oscarlyn Elder: So now that we've talked about the landscape of the presidential election, let's turn to the congressional election. And I think you've already foreshadowed that the closeness that's happening there, the split. How likely is it that we see a change from the current congressional configuration?
Visual Description: A graph of the Republican candidate’s poll leads in each of ten key 2024 Senate races is shown, with the Republican candidate leading in Texas (up 7.4 points), Florida (up 5.7 points), and Montana (up 5 points), and trailing in Nevada (down 9.4 points), Pennsylvania (down 7.6 points), Arizona (down 6.7 points), Wisconsin (down 6.7 points), Maryland (down 6 points), Ohio (down 5 points), and Michigan (down 5 points). Source Strategas.
Dan Clifton: This election is so amazing that we may do something we've never done before in American history. Right now, the Republicans control the House and the Democrats control the Senate. If the election was held today, both parties would switch which chamber they run. That's never been done in American history in one election. Modern American history. And that's the consensus forecast. Let's take the Senate first. The Senate is a map. And right now the Democrats are defending three states that Donald Trump won in 2020. And what you've seen is, increasingly, the presidential races are correlated to what is voting in the Senate races. In fact, the last two cycles, it's been about a 100% correlation between the presidential race and the Senate race. So the consensus naturally looks at that and says, we're going to see the Republicans win in Montana, West Virginia, maybe Ohio. Politics is much more complicated than that. And as we get into the final 60 days, candidate quality will really matter. But what has changed over the last couple of weeks is that the Republicans are very likely to take West Virginia, and now they're gaining steam in Montana and they're outside the margin of error. And so if the Republicans win West Virginia and Montana and the Democrats pick up no seats, the Republicans would have 51 seats in the Senate and they would have control. Now, in a dynamic world, what you will see over the next 30 days is the Republican lead in Florida coming down, the Republican lead in Texas coming down, because there will be a lot of money spent in those races. And so investors may look at that and go, “Whoa, that looks like the Republicans may lose a couple of seats. What does that mean for tax policy?” Because if one party has control, whether it's Republican or Democrats, what you could do on tax policy is so much bigger. But right now it looks like the Republicans are going to win the Senate, even if Vice President Harris wins the White House. If Trump wins the White House, the Republicans are probably going to gain even more seats in the Senate. Now, let's go over to the House. The House is fascinating. The House is the complete opposite of what's happening in the Senate. There are 18 House districts that Republicans hold that Joe Biden won in 2020. So, the idea coming into this year was, Joe Biden just needs to win five of those seats and carry the Democrat over, and the Democrats will have control. So they have plenty of opportunity. What's happened, however, is that Trump’s running better in Virginia. Trump is running better in New Hampshire. Trump is running better in Minnesota than you saw four years ago. And that means that the Republicans may pick up a seat or two there, right? So, what you're seeing is that it's very likely the Democrats are going to take over the House, but they're going to have a margin of three, four or five members. And at the beginning of the year, it was expected to be much larger. Now, of course, all that can change if Vice President Harris really accelerates here and beats Trump pretty bad, then the majority in the House will likely grow. But you are talking about razor-thin majorities to govern next year and possibly split government when we have to raise the debt ceiling and when we have to deal with a looming fiscal cliff. That's not bearish in any way. We will resolve those issues. It just makes it more complicated how you get that resolution than if you have one-party government.
Oscarlyn Elder: Razor-thin margins, right? Tightness. Razor-thin. Leading to this September to remember. I think that's a key takeaway for folks. And I know people are feeling that in the questions that we got for this event. They’re sensing that tension.
Keith Lerner: If I may jump in, it sounds also like if it's going to be that tight, some of the things that each party wants to do may be more challenging, as far as the bigger issues. I know we’ll probably get into that more later on.
Dan Clifton: Yeah, we'll get into it. So I think it's important when a presidential candidate puts out a proposal to evaluate what that proposal is. And by the way, once the proposal is out there, it doesn't die. It keeps going. Election cycle. Election cycle. So you have to understand it. But if you have a divided government, are we really going to do an unrealized capital gains tax? Probably not. And by the way, even in complete control, we're probably not going to do an unrealized capital gains tax. So you’ve just got to be able to say, “Okay, what's the path of least resistance for resolving some of these policy issues?” Because you have a divided government. And of course, with divided government means you're going to go right up to the to the deadline and make it exciting. The point is, we're still going to resolve it, so I don't find this to be very bearish. And if you look historically, our view is that stocks are not partisan in any way. Stocks have done well under any combination. Stocks have done pretty well under a divided government.
Keith Lerner: Speaking my language there.
Dan Clifton: Yeah, you know as an investor it's important to understand these dynamics and what the range of outcomes are going to be. But you can't let it affect your investment decision-making.
Oscarlyn Elder: Well you mentioned taxes, so let’s go there.
Dan Clifton: That’s a good place to go.
Oscarlyn Elder: That's a great place to go. We know a lot of the folks who are listening today, everybody cares about taxes. Our clients care about personal taxes, business taxation. And we've discussed before on our quarterly webcast alerting folks to the sunset that's going to happen at the end of 2025. So why don't you take us through how you see various election outcomes potentially impacting tax policy?
Visual Description: Bar chart titled 2025 could be the largest year for tax policy since 1913. Chart displays the costs of extending expiring current tax and trade provisions between 2024 and 2033. Values in the chart are as follows: Tax Cuts and Jobs Act individual income provisions, $2.488 Trillion; higher estate and gift tax exemptions, $126 billion; 2017 Tax Cuts and Jobs Act changes to the tax treatment of investment costs, $325 billion; certain business tax provisions altered by the Tax Cuts and Jobs Act, $150 billion; expansion of the premium tax credits, $271 billion; other expiring tax provisions, $56 billion; trade promotion programs, $15 billion. Bulleted list of taxes beside chart is: Expiring individual tax provisions from the Tax Cuts and Jobs Act; expiring tax provisions for small business; Affordable Care Act subsidies; The Global Minimum Tax; The Inflation Reduction Act’s Energy Tax Provisions; housing tax policy; cryptocurrency tax policy. Source Strategas, CBO May 2023, budgetary effects of extending certain revenue provisions, FY.
Dan Clifton: Yeah. So first let me just start off by saying that I think next year, 2025, will be the most important year for U.S. tax policy since the creation of the income tax in 1913. I do not say that lightly. I've been working on tax policy for 25 years. I've seen every major tax bill in that time come through, and I've worked on them. if you are not working with your Truist advisor today, you need to immediately get in touch with them for the planning, because next year there's going to be a line out the door for appraisers. And it's just good to understand what is on the table and what those options are, and hopefully today we can provide you some context around that. 2017, President Trump at that time passed a series of tax cuts for individuals and corporations. The individual tax cuts expire at the end of 2025. Collectively, they represent about $3 trillion of expiring tax provisions over the next ten years. So what does that mean? That means that income tax rates from the bottom all the way to the top are going up, if Congress doesn't act. It means that the standard deduction will get cut meaningfully. So if you're not taking many deductions in the regular tax code and the standard deduction goes down, your taxes are going to go up. If Congress doesn't act, the child tax credit gets cut in half. The estate tax exemption goes from 13 million to 6.5 million. This is the Super Bowl of taxes that we're facing next year. And my sense is that Congress is not going to let all these tax cuts expire. But why the election is important, is it will determine how these tax changes get resolved.
Visual Description: A visual that ranks potential tax policy outcomes in 2025 as higher probability, possible and lower probability. Visual summary reads, “The election outcome can meaningfully change which tax cuts get extended and which tax cuts do not. Moreover, other tax increases can be included to pay for expiring tax provisions.” The chart shows taxes impacted by the following: Republican sweep; Democratic sweep; Trump presidency with Democratic House and Republican Senate; Harris presidency with Democratic House and Republican Senate. Source Strategas.
Dan Clifton: And so what you are seeing is the Democrats are talking about, that's fine. We're going to extend all the middle-class tax cuts, but we are going to make higher-income individuals pay more for that. What are they talking about? A new surcharge on top of the income tax. So instead of the income tax rate going to 39.6, it would go with maybe a 5% surcharge on top of it. So you're talking about maybe about 44%, talking about raising the capital gains tax rate, talking about higher corporate tax rates to pay for that, and higher U.S. multinational tax rates. My sense is you're not going to get all that, particularly even if you have complete control. That means you still have some moderate Democrats that are in there. But it serves as a baseline. What are the Republicans talking about? Well, we're going to extend all of those tax cuts. Trump this last week was talking about cutting even further. I'll get to that in a minute. But they're talking about using trade policy to offset the cost of those tax changes. So now I’ve got both major parties talking about some level of offset for those tax cuts. And that's very, very rare in American political history because I like to call the tax cuts candy, and I called the tax increases spinach. Usually, they don't talk about spinach on the campaign trail. And they are talking about it now. And so if you get divided government then what you'll see is a two- or five-year extension of most of those tax changes. And you'll have modest offsets, like stock buybacks would face a higher tax rate, if that's included in it, you would probably see some changes to college endowments in their for-profit tax status. So in a divided government, it's harder to go after a broad-based population. And I think the small business community has been very encouraged in the last couple of days because Vice President Harris last week in New Hampshire started talking about small business tax cuts. We have a major small business tax change that expires at the end of the year, which gave pass-through entities a tax deduction. So now you got both parties saying they want to extend it, it's likely going to get extended. But if you are below $400,000 of income, you are likely going to be getting everything extended. If you're above $400,000 of income, you're probably going to see a difference in your party. And that's why I think it's important to do the planning. I'm very focused on the estate tax. I still think that the estate tax can get resolved under all combinations of government based on where the votes are, but you don't want to take that risk. You just want to be able to work with your Truist advisor and just understand what your options are.
Oscarlyn Elder: We want folks to know we've been messaging this. It's really important. You're messaging again, you know, if you're in that income level, it's really important. If you have a complex estate, you need to be proactive. Because if you wait until the fourth quarter of 2025, it's not going to happen. That will not give you enough time to execute the planning that you might need to.
Dan Clifton: That's right. I've been through this in 2012 when all the Bush tax cuts were expiring and in 2010, and the central complaint that we were getting in the middle of the year was that they couldn't get into appraisers to do the valuations. So that's why I would rather do it now. Just get it over with and then you can adjust accordingly as the year goes along. And our motto for this year on taxes and for next year, just be prepared. Be prepared for these tail outcomes. And hopefully they don't come and there's no issue, but we don't want to risk it.
Oscarlyn Elder: And Dan, I have to say my disclaimer, you know, we at Truist do not give tax and legal advice. so I need to say that, that we don't give that advice and we really recommend -- again, we are part of the advisory team, but we recommend that folks also bring in to that discussion their tax and legal advisors to help make those decisions.
Keith Lerner: You know, when you said be prepared, it reminded me that our outlook for this year was be prepared. This is not the year to be on autopilot, because not only in the US, we have the election here, but we have 40 elections around the globe. So that that hit a point that we've been discussing quite a bit this year.
Dan Clifton: Yeah, absolutely.
Oscarlyn Elder: Let's zoom in. Now that we've talked some about the tax environment and what may or may not happen there, the different potential outcomes. Let's talk for a few minutes about potential policy differences among the candidates in other areas other than tax.
Visual Description: List titled Priorities for the next President: Four major policy issues separate Harris & Trump: 1. Trade 2. Foreign Policy 3. Regulation 4. Immigration. Beside the list are photos of Harris and Trump. Source Strategas.
Dan Clifton: So I believe that this election is a referendum on the speed at which America will deglobalize. It's not a bearish statement in any way, but America has been deglobalizing since 2018. So just to give you context, 22% of U.S. imports came from China in 2018. Today it's about 13%. So it's a major, major change. And it's not that we're importing less, it's that the trade flows have moved over. And there are a lot of reasons for that. Covid, the Ukraine war, the tariffs on China. But there's a clear difference between the two candidates. Donald Trump is very likely to put broad-based tariffs on China and has the executive authority to do that. We don't need to know what's going on in the Montana Senate race to know if he's going to get in. This is what he's going to do. And when he does that, the supply chains will migrate out and they'll go into India, and they'll go into Vietnam, and they'll go into Mexico, and they'll come here to the United States. So you change where world growth is going to happen, and you change where the earnings are going to have to happen. I think that's probably the biggest difference on the two candidates outside the tax issue is on that trade policy issue. That does not mean that Vice President Harris is going to be weak on China. It's just going to be very targeted: solar, steel, EVs. Those are areas where they'll focus, right? Trump is Trump. It's like bicycles, you know, from China. Like he just doesn't want that development happening there. So that's the big difference. The second is on foreign policy. What's very, very interesting to us is that Trump is very clear about ending the war in Ukraine and giving Netanyahu a little bit of time in Israel, but really kind of settling that up as well. And so what you are seeing is Trump saying, “I'm going to get rid of the forever wars,” okay. And Zelensky took that to heart and he went into Russia last month. He attacked a nuclear power. Again, the year of unknowns here, right? And this has really happened because he knew if Trump wins he needs some sort of leverage because there's going to be a negotiated settlement. So you almost have this like pulling forward of geopolitical activity ahead of the US election. So world growth is changing. World geopolitics are changing. And there’s going to be obvious implications for that. So that's second. Third is regulation. Trump is a deregulation candidate. Deregulation in multiple areas. Banks, education, prisons, all sorts of areas. What's interesting is that over the course of this cycle, the regulation issue has become less important because there was a Supreme Court ruling on June 28th, the day after the Biden-Trump debate. You had all this happening where they put limits on future governments and how much they can regulate. So even if Harris gets in, there's going to be an unlikely ability to be able to regulate further. But it still matters for the election and then immigration. I think that Trump will have the border shut down before he even gets back from his inauguration on January 20th, because he knows how to do that. And with Harris, she's not going to be as forceful on the border. So those are really the four issues outside tax and budget, which are trade, foreign policy, regulation and immigration. And what I like to say is I've never seen a wider difference in the candidates on issues. It's what makes this election so exciting and binary and elections do have consequences, and this one will have consequences one way or another.
Oscarlyn Elder: Are there specific industry verticals or sectors, as you look at the landscape and you think about the policy differentials, that you would want to draw our listeners to?
Dan Clifton: So if you look at manufacturing, Trump is trying to bring back manufacturing as fast as he can. You're going to get that under both administrations. And in fact, the Democrats’ support for the Inflation Reduction Act will actually increase the clean energy type of manufacturing. Trump is going for a broader type of manufacturing. If you look at kind of just financial services, you're already getting signals from the regulators that they're going to relax some of the Basel rules, no matter who gets elected. But in specific areas within financial services, Trump probably will be a little bit better on the regulation side, and being able to get that through. And then obviously on health care, which is a really big industry and one that I think is important, you have these Covid subsidies for the Affordable Care Act that are expiring. And what they did during Covid was they expanded who was eligible so that wealthy people can get ACA subsidies, and they expanded the tax credits you get for the Affordable Care Act across the income spectrum. They expire at the end of 2025. And if Trump wins, it's unlikely that you're going to extend those for the high-income households. If Harris wins, it's very likely that you'll extend them. So what you are seeing is more income support on the healthcare side and on the consumer side if Harris wins, relative to if Trump wins.
Oscarlyn Elder: You've already noted several items that are a bit historic. We've had the unexpected with Biden withdrawing, Harris winning the nomination. You talked about, again, that potential for the Senate and the House to flip as far as control. Is there anything else out there lurking that you would want us to be thinking about?
Visual Description: Table titled 269-269 tie could happen … Really. Data in table is as follows, showing how each party could win exactly 269 votes: Democratic electoral college votes: Safe seats 191, likely seats 30, lean and toss-ups Michigan 15, New Hampshire 4, Pennsylvania 19, Wisconsin 10. Republican electoral college votes: Safe seats 121, likely seats 97, lean and toss-ups, Arizona 11, Georgia 16, Maine 2nd district 1, Nebraska 2nd district 1, Nevada 6, North Carolina 16. Photo of investor Warren Buffett and map showing the Nebraska congressional district where he lives. Source Strategas.
Dan Clifton: Absolutely. So, what I tell my team is anything with a 5% probability, we have to understand so that we're not caught off guard. There are a number of things, but one that I would highlight for you is that it's been 200 years since America has had an electoral college tie. And, you know, again, it's probably a 5 to 10% probability. But if Vice President Harris wins Wisconsin, Michigan, Pennsylvania, and Donald Trump wins the four southern suburban states, this election is going to come down to one congressional district in Omaha, Nebraska, which has its own electoral vote, and how that district votes will determine whether we have a tie or not. So if Harris gets that district, it will be 270 to 268. If Trump wins that district, it would be 269-269 underneath that scenario. So, I like to say, you know, Warren Buffett gets to pick a president here. And, you know, we joke about it. But what would happen is that the vote would go to the House of Representatives for the president. And it's not each individual member. It is one state, one vote. And that vote is January 3rd. So, you can go 60 days without knowing who's going to be president of the United States. And because it's one state, one vote, you can look at it and say, “Oh, Democrats have 27 seats or Republicans have 27 seats,” but they are going to have to take into consideration their district’s vote, how their state voted. And so there's going to be uncertainty. And so, we’ve just got to be mindful of that. Now, can you imagine if the Republicans are in the minority in the House but they control 27 states and they elect Trump with that? You could see the kind of political polarization that would result from that. Or vice versa, if the Democrats do it on the other side, the Senate gets to pick the vice president. So technically, if the forecast is right and the Democrats win the House and the Republicans win the Senate because of that historic switch, you can end up with a situation where Vice President Harris becomes president and JD Vance becomes vice president. I will tell you right now, cancel your Netflix accounts because the reality TV show is moving to 1600 Pennsylvania if it's a Harris/Vance. And so these are the types of things that can happen because we changed the voting structure of the United States in 2004. We've created these increasingly close elections. Now you can get into some of these tail risk types of events. By the way, that's just one. There's probably a lot more of that. Happy to talk to you about more in detail.
Oscarlyn Elder: And it may not be the base case, to your point. That's not the base case. However, what you're pointing out are some of the more extreme cases where there's maybe a 5% probability and we just don't want folks surprised. Again, it just reemphasizes the closeness of the situation.
Dan Clifton: Absolutely. In 2016, I wrote a note in the middle of the month that said, here's what we're going to do if Trump wins the election against Hillary. It was one of the least read reports in Strategas history for like three weeks. People are like, why would you even waste your time doing that, right? And then Trump won. It became the most-read report in Strategas history by 9:30 on election night. So as long as you're prepared, you can respond to these events in real time. And think about what we had to respond to, an assassination attempt on one of the candidates, a conviction of one of the candidates, a president of the United States who set the debate himself and didn't show up for that debate. And the replacement of a candidate 100 days before the election. We've never seen anything. Each one of those is crazy. But to conflate them over an eight-week period, I'm ready for more surprises, even ones that I'm not aware of at this point.
Oscarlyn Elder: Well, Dan, you've given us a lot to think about. I want to draw Keith into the conversation more. To Dan's point, we don't know how this is going to play out, right? We have a high level of uncertainty and we get the question a lot, I know you get it a lot, about how we incorporate all of this political short-term uncertainty into our market outlook. So my question to you is, how do we think about it?
Keith Lerner: Sure, and before I go into that, Dan and I have been going through, I guess this is maybe our fourth cycle together. And it's interesting, like 2016. With Trump moving in it was different, then 2020 was Covid which was a whole different animal, now this year. So it gets more interesting each and every year. But always great to hear your point of view. It’s fascinating how many historical facts you have in your mind as well. So from our perspective, the elections certainly matter and Dan highlighted this. It certainly can matter from a personal basis. It can matter from a business standpoint, from the stock market.
Visual Description: Chart with headline Markets have presented opportunities & risks under both parties. Line graph shows the performance of the S&P 500 from 1948 to present with shaded sections to mark the party of the sitting president. S&P growth has been consistent independent of the party in power.
Keith Lerner: Dan, you alluded to this before. It's one factor out of many factors. And if you look back historically and at the chart that we're showing, markets have done well under all different types of political regimes. And you know, we did a study more recently that if you just invested under just the Democratic leadership or Republican, you're much better staying invested through both over time. And just to make it a little bit more real, if you think about, say, the 80s, that was a great time in the stock market that was primarily under Republican leadership. And then the 90s was also a great decade under Democratic leadership. But then in 2000, we actually had a balanced budget. And we had a new president in 2000 that came in after you had one of the strongest returns in history after you had a very long expansion. And we had the technology bubble implode. And I would argue whoever came in at that point would have had a challenging environment especially for the stock market, because you were overvalued and had that technology implosion. You fast forward to say, 2009, we have a new president who was coming in at the heart of a recession that was already underway. You had the stock market down a lot, expectations really low. Whoever came in, I would argue that unless the end of the world was happening, they were going to have a better environment for the stock market and also the economy. And you saw that, and then going back to the 2020 period and Dan, I think you and I were doing this back then, I was saying the path of Covid and what was going to happen around that was probably more impactful than the election itself. And if I remember correctly, I think it was a week after the election that Pfizer came out and talked about the vaccine, but also we had a huge amount of stimulus and monetary support as well. So my point by bringing this up is not, again, the elections matter. But you know, what I see often that happens is people think it's the only thing that matters. And other things matter. The business cycle, we're seeing the employment report that just came out recently, what the Fed's going to do. You mentioned China, Middle East tensions, inflation. So there's just a lot of factors. And it's one out of many. So I would say it matters. It can sometimes also provide opportunities, especially in volatility. But we don't necessarily just change our investment philosophy just because of the election. And Dan mentioned already that it’s probably going to be somewhat divided as well.
Oscarlyn Elder: Yeah. So it's one element, but there are other elements that we pay attention to that we think matter just as much, if not more.
Keith Lerner: And collectively I would say the business cycle probably matters more than anything.
Oscarlyn Elder: Right. So Keith, you mentioned the word opportunity just a second ago. I want to pull on that thread some. What are some of the sectors that you think could benefit based on who may win? And Dan just outlined a lot of complex scenarios, so I think we could keep this fairly simple. But you know, again, from a sector perspective, how are you sizing up the opportunity?
Visual Description: Table titled Market & sector performance under recent presidents displaying annualized total return for different market sectors under Obama, Trump, and Biden. Table bottom row titled “Strong returns despite varying policies,” with the following data for S&P 500 annualized total return: 13% Obama, 14% Trump, 17% Biden. Source: Data source: Truist IAG, Bloomberg. Obama = Performance from Election Day 2008 to Election Day 2016; Trump = Performance from Election Day 2016 to Election Day 2020. Biden = Election Day 2020 to August 30, 2024. Past performance does not guarantee future results.
Keith Lerner: Yeah. And what I'm going to talk about more specifically is the market. Dan talked about how there's definitely a significant change in policy so some of our business owners may feel a lot of different outcomes as we go through the election, I would say, and our work finding consistency around the White House and what sectors outperform is hard. In other words, we're finding more inconsistencies relative to policy. So I'll give you an example. The chart that we're showing now looks at the current president and the two former presidents, and we looked at the sectors and how they performed. And there's a lot of discussion about which sectors will outperform or underperform, depending on the president or who wins. And if you look at this, this was eye-opening to us, is that the technology sector has been one of the top sectors under all three presidents. And why is that? That's where the innovation has come from as well. And then if you look at something like, say, financials and energy, especially when you have a lot of different policy when you think about, say, Obama relative to Trump or Trump relative to Biden, what stands out is financials and energy under both Obama and Trump were one of the worst sectors because there were other things that were happening. And then, heading into the last election, there was a lot of discussion that Biden would be much more negative for energy and financials. What's eye-opening to me is that energy has been at the top. The performance sector and financials have been within the top three. So that kind of went counterintuitively. And again, it doesn't mean their policies are making a difference. It just means there are other things that are happening in the economy and other drivers. And go back to technology. Artificial intelligence and its profitability going forward will likely have a more dramatic impact than who wins the White House.
Oscarlyn Elder: So let's pull on another thread within what you've said. Dan has talked a lot about tax policy. Again, potential outcomes there. How do you see tax policy impacting the financial markets?
Visual Description: A line chart with headline, Stocks rose in 2013 despite a tax hike and fell in 2018 despite tax cuts. Chart shows consistent growth from the S&P 500 between 2011 and 2020. Data source: Truist IAG, FactSet. Past performance does not guarantee future results.
Keith Lerner: Look, it goes back to the same theme that I've been talking about. I mean, on an individual basis, if your taxes are going up, it's going to be impactful from a stock market perspective. Again, we've gone through several decades and we cannot find a consistent pattern between tax policy and market outcomes. And maybe this is simplified because, Dan, you mentioned this one: This upcoming year could be the most dramatic change since, you said like 1913, I believe. But if we look back more recently, just some examples, back in 2013, tax rates were raised and there was a lot of anxiety ahead of that. I remember talking to a lot of clients about that. And after that, that tax increased. The stock market was up over 20% that year. And again, there are other reasons why. And then you fast-forward to 2018, we had a dramatic reduction in the corporate tax rate. And in some ways what that did is we started to see the economy actually move, increase more rapidly. But at the same time that was happening, interest rates started to move up and the Fed was getting concerned about inflation. So they started raising rates. So it almost counteracted the benefit of the tax policy. And what you saw in 2018, despite those corporate tax rates coming down, the stock market was flat that year. Again not saying that tax policy doesn't matter, but what I am saying is other factors tend to matter. You can't just look at any of these things in isolation.
Oscarlyn Elder: And so let's highlight again some of those other factors like the business cycle, Fed policy, maybe to share a little bit more about your perspective there.
Visual Description: A bar chart titled Business cycle and the Federal Reserve matter. Chart shows for 1-year price returns on the S&P 500 as follows: June 1989 13%, July 1995 21%, September 1998 21%, January 2001 negative 14%, September 2007 negative 24%, August 2019 11%. Data source: Truist IAG, FactSet. Past performance does not guarantee future results.
Keith Lerner: Yeah. I think as we sit here today, one of the biggest debates in the market and why you see in the market a bit more on edge right now is we're in this transition period in the economy from this post-pandemic stimulus-induced rebound. And now we're kind of normalizing towards an economy which we think is closer to a 2% economy. But there's a big debate. Are we going into a recession or is it just a slowdown? The base case is that we're more likely just normalizing. But either way, that transition feels similar and you see a slowdown. And then when you look at the stock market historically, there's a big divergence between how it acts after the first Fed cut. If they cut rates and you avoid recession a year later, the market tends to be up. That makes sense because profits should still also be moving higher. If you fall into a recession, the market tends to be down. So again, our base case is we're going to continue to grow maybe more at a 2% pace. But it's a squishy, sloppy period right now. But I think that's going to be the main driver of this market, not only for the next month but over the next several months.
Oscarlyn Elder: And it also kind of goes back to your misery index and the closeness of this race. It's all interconnected and it's so squishy. It's a bit impossible to kind of call where it's going to land right now.
Keith Lerner: Yeah, that's to Dan's point. I mean, it is closed, and we still have to have a framework and we have to have a base case. And then if the data changes, just like Dan will do as well, we'll adjust our view. But so far if we look at the aggregate or the weight of the evidence in our work, it still suggests more of a slowdown. But again, it feels different than what we've been accustomed to the last few years.
Oscarlyn Elder: So the one word that I don't think anybody's mentioned in this conversation so far has been deficit. And so we've heard a lot about the deficit, the debt situation. How does that impact your outlook? And, Dan, look for an opportunity, maybe you could jump in as well.
Keith Lerner: Maybe I'll kick it off. I know you have some thoughts. I would say, either way, when you have deficits as high as they are, to service that debt is becoming higher and higher, that just that means longer term your potential GDP or economic growth is probably less. If you have more money going to service the debt in more productive areas, whether that's education, infrastructure, I think that just means that there's going to be less opportunity. The economy is not going to grow to its full potential. And then from a market perspective, it doesn't seem like each candidate isn't focused on reducing the deficit. I guess that's my read, you may have a different read, Dan. But at some point, if the market gets to a point, a tipping point, and I don't know what that tipping point is, you might see interest rates -- unlike what they've been doing recently -- start to rise. And that may limit some of the things that either candidate wants to do as well. Dan, how are you thinking about the deficit side?
Dan Clifton: Yeah. So, I get asked this all the time and I don't want to throw darts and I wanted to quantitatively figure out what drives the deficit. We figured it out. Deficits didn't matter. That didn't matter. But the interest cost on the debt creates the catalyst for Congress to act and for financial markets to respond. And what's very interesting is that that interest cost hits about 14% of tax revenue. Markets respond and Washington responds. So we have been below that 14% level for over 30 years, because when the Berlin Wall came down, globalized inflation came down, interest rates came down and our debt servicing cost went down. So we just lived through the most extraordinary 30-year period of fiscal policy where we can cut taxes, increase spending, do all that, have big deficits, and it didn't matter. And what happened was when inflation came back in 2022 and interest rates went up, then it actually started to create pressure. So the first place you see it, we crossed over the 14% line last July. And immediately the ten-year yield went to 5% by October. So everybody was on CNBC, “Oh, the deficit.” And the Treasury today has liquidity facilities that they did not have in years past so they could manage to prevent the quote-unquote, “bond vigilantes” from coming out. They probably have a whole nother year of those facilities left, and they will use them next year no matter who gets elected. But what will happen is politically, you're really seeing the pressure under the surface in Washington because only one-third of the budget is for discretionary spending. That's the education and the defense budget. Next month, we will spend more money on interest costs than we will on the US defense budget for the first time in American history. American history! That's like World War Two, the American Revolution. We have data going back to like 1770 on this one. It's the most robust data set we have. And so what's going to happen is Harris or Trump are going to win. And then you got all these grand plans. And the budget Committee of both parties are going to go, wait a minute here. We don't have the money to do this. Now I say that; over the course of the next year, if Keith’s right and the economy is still growing, the deficits are probably going to start coming down. The Fed is cutting rates or it's expected to cut rates. We expect the fed to end QT in the first half of next year.
Oscarlyn Elder: And QT is quantitative tightening.
Dan Clifton: Quantitative tightening, I'm sorry, yeah. So you have these facilities in place that are going to make it easier. But you can't run a deficit of five, six, seven percent of GDP with full employment. And what the risk here is, if employment actually does deteriorate, those are the taxes that are holding the budget up. Those taxes go away. There's going to be a lot more pressure on tax increases and spending cuts moving forward. And that's not something we've ever had to deal with. And I'll just tell you this: Before this 30 year period, we used to raise taxes during recessions. And we didn't do that in 2001. We didn't do that in 2008. We didn't do that in 2020 because we had a low debt servicing cost. And so internally, our team’s looking at it going, are we going to raise taxes in a recession? I don't know, but it's more likely today than it would have been over the last 30 years.
Keith Lerner: Yeah, maybe just to bring it back to the investment side, a lot of our companies, especially our large-cap companies, they're flush with cash. So if you're worried about that, actually from an investment standpoint, you can invest in companies that have a lot of cash. We don't have any near-term concerns that somebody that's in Treasury bills, they're going to still get paid. And we'll see that for the foreseeable future. It's really what Dan alluded to. Like the economic growth side, it may cause some anxiety and we have to deal with it at some point. Again, it's hard to say this is the year or this is the time that this is a tipping point. But at some point, to Dan's point, you have to deal with it.
Oscarlyn Elder: The word that I took away from what you said, Dan, was reality, regardless of who wins. Reality is going to hit and that's going to impact kind of the opportunity set for what can be done by the winner.
Keith Lerner: Yeah, and one last point. Where interest rates actually fall, e ven if we go into a recession, it may be higher than you would have thought historically because there's some concern about how much treasury issuance we have, how much supply we have with these fiscal deficits.
Oscarlyn Elder: Yeah. All right, Keith, here we are in September, the September to remember. As we get closer to the election, what do we think our clients should be watching?
Keith Lerner: Yeah. Well, you know, we have a lot going on outside the election as I mentioned, this kind of transition period in the economy, this kind of growth scare that we're seeing. Historically when we look at the election year, first of all, September, as most people know by now, tends to be weak. We started off weak already. Another thing that we've noticed historically is as you get into October before the election, we start to see more angst build. We start to see a pop in what's called the volatility index, which means the swings get bigger. And as you move past the election, you get some clarity. You tend to get things kind of coming back down. There's a sigh of relief. I remember back in 2020 that before the election we actually had a correction. We used that to increase equities. And a lot of folks were like, “What are you doing? There's so much uncertainty around the election.” And the reality is if you wait for clarity, the markets move. Now I'm not saying we've had -- we haven't had a deep enough correction yet for us to change, but we'll be looking to see if there's any opportunities where things maybe get overdone ahead of the election. But the main takeaway is that the price swings that we've started to see in August are likely to continue. And Dan just mentioned all these are the factors. So expect the back and forth and the swings to be much higher than what we've been accustomed to, especially in the first half of the year.
Oscarlyn Elder: So I think we said before, it sounds like an environment where you may need to buckle up, right? And it may make you a little nauseous, you need to buckle up.
Keith Lerner: Exactly. But also don't lose sight of your long-term plans. Right? Have an anchor that's part of our investment philosophy. And just realize we will get to the other side of this. We will know, eventually, maybe not even right on the day of the election, but we will know who the president is. We will know who Congress is. And then the market will start focusing back on the business cycle. So don't lose sight of that, you know, next year. And then, by the way, four years from now, we'll do this again. And most of our clients are investing for five years, ten years, 15 years. And we have a lot of political change during that period.
Oscarlyn Elder: We don't want folks to make a short-term emotional decision about a long-term pool of assets.
Keith Lerner: Yeah. And I will say, as I've gone through this, it's such an emotional period for clients because it's meaningful, especially on a social standpoint, about what their point of view is. And I've heard clients that say, “Well, if this person gets elected, I'm going to sell all this or I’m not going to invest,” and that has been the wrong decision over time. There are still people who are waiting to invest from ten years ago, as an example. So again, don't let this be the main driver. It doesn't mean you can't make marginal changes. But in general, I would not change an investment plan based on the outcome of the election.
Oscarlyn Elder: Is there anything else that you want to share with folks around that?
Visual Description: Line chart with headline, “Companies will adjust once they know the rules of engagement.” Two lines in the chart show how the S&P 500 matches earnings estimates generally mirror one another in moving up, moving down or staying steady. Data source: Truist IAG, FactSet. Past performance does not guarantee future results.
Keith Lerner: Well, maybe I'll end on a more optimistic point. I mean, as much as there's all this craziness that happens in Washington, where I have a lot of optimism is our corporations and their ability to adapt. And you've seen this time and time again, you saw this coming out of the financial crisis, where profits came back very quickly. And you think about the last four or five years. These companies, our companies, went through a once-in-a-generation pandemic, right? And we've seen inflation the highest in 34 years. And what have they done? They've adjusted to the right size and the chart we're looking at shows corporate profits are at record highs. And they did that very quickly. So regardless of your thoughts about Washington, I would say have more confidence in our businesses, small businesses and large businesses, that once they understand the rules of engagement, they will adjust. And I just have a lot of confidence in the future of our companies and innovation.
Oscarlyn Elder: Yeah. Why don't you share with our viewers also our tactical positioning in portfolios right now. Let's summarize that so they have that for context.
Visual Description: A table of Truist’s key positioning in different asset classes, global equities, and fixed incomes. Positioning is rated on a five point scale with 1 as less attractive and 5 as more attractive. Scores are as follows: Asset classes: Equity 4; Fixed income 3, Cash 2. Global equities: U.S. large cap 4, U.S. small cap 3, International developed markets 2, emerging markets 1. Fixed income: U.S. government 4, U.S. investment grade corporates 2, U.S. high yield corporates 1, Duration 3.
Keith Lerner: Yeah. So we've gone through a lot today so I'll keep this at a high level. And we obviously publish more about this in detail. But from the big picture, as we think about global assets or investment opportunities, we still like stocks relative to fixed income and cash. We still obviously see a lot of opportunities within fixed income as well as we invest globally. We've been Team USA, I would say, for several years now. We still think the USA on a relative basis is more attractive. The economy, even though it's slowing down is still more resilient than what we're seeing in many parts of the globe. We're still focused on US large caps relative to small caps. I’ve got a lot of questions about that because small caps are very cheap and they're probably going to benefit more from the interest rate movement down. But, in general, if we're going through this kind of economic transition, small caps tend to do better when the economy's accelerating. We're not seeing that. We're seeing an economy that's cooling. And then on the fixed-income side, we like to try to keep things simple. You know, the good thing with fixed income is bonds are acting like bonds again. We had a correction in August, bonds actually went up. So they had that normal, that buffer that was missing the last couple of years. And we're just keeping it more focused on high-quality fixed income at this point. And as I mentioned, we're looking for tactical opportunities. We had one of those back in April where we raised equities. And we're looking for opportunities, maybe as a result of this election, to also make changes as well.
Oscarlyn Elder: I want to thank you both. I think our listeners are really going to derive value from this conversation. And, Dan, to steal your, I guess, moniker, I'm not sure that it's the September to remember, I think it’s the election to remember.
Dan Clifton: Yeah, sure.
Oscarlyn Elder: We've had so much history that's already happened. We have such a close situation with an economic environment that's in transition, that it's very important for folks to focus and to be prepared. And I think that's ultimately our message. For your long-term goals, we really want you to be prepared and to reach out to your advisor. So I want to thank you all for the expertise that you've brought to this conversation. I think it's truly unique. And I know, again, that our listeners have really enjoyed it. And I want to thank you for listening as well. If you want to view the charts that Keith shared and explore other market and economic visuals, Truist Wealth’s monthly publication The Market Navigator is available through your advisor, so reach out to your advisor. The latest edition was published on September 4th. And a quick reminder that we're going to host another Economic and Market Insights Quarterly Livecast on October 10th, so you're going to want to join us for that. our special guest will be Mark Osterle, Truist’s Deputy General Counsel for Government Affairs. He's going to share his perspective on the election as well as D.C. as a Washington insider. If you have questions about today's event or your unique situation, reach out to your Truist Wealth Advisor or team. We're here to help you stay anchored and to filter out the noise while using the weight of the evidence to position for timely opportunities and solutions, all in support of helping you achieve your financial goals. If you're not working with a Truist Wealth Advisor, reach out to your relationship manager. They will work with their Truist Wealth teammates to help support you. And lastly, I have a request. We want this event to be a meaningful experience for you. We hope we've created that. If all goes well, in a few seconds, you're going to have a survey that appears on your WebEx screen. Please take the time to complete it and give us your feedback. We look at all the feedback and we use that information to shape our future events. Thank you again for trusting Truist Wealth to be part of your journey. We look forward to talking with you in October.
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The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but Truist Financial Corporation makes no representation or guarantee as to their timeliness, accuracy or completeness or for their fitness for any particular purpose. The information contained herein does not purport to be a complete analysis of any security, company, or industry involved. This material is not to be construed as an offer to sell or a solicitation of an offer to buy any security.
Opinions and information expressed herein are subject to change without notice. TIS and/or its affiliates, including your Advisor, may have issued materials that are inconsistent with or may reach different conclusions than those represented in this commentary, and all opinions and information are believed to be reflective of judgments and opinions as of the date that material was originally published. TIS is under no obligation to ensure that other materials are brought to the attention of any recipient of this commentary.
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Investments involve risk and an investor may incur either profits or losses. Past performance should not be taken as an indication or guarantee of future performance.
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Asset classes are represented by the following indexes. An investment cannot be made directly into an index.
S&P 500 Index is comprised of 500 widely-held securities considered to be representative of the stock market in general.
Equity is represented by the MSCI ACWI captures large and mid cap representation across 23 Developed Markets (DM) and 24 Emerging Markets (EM) countries*. With 2,897 constituents, the index covers approximately 85% of the global investable equity opportunity set.
Fixed Income is represented by the Bloomberg U.S. Aggregate Index. The index measures the performance of the U.S. investment grade bond market. The index invests in a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States – including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than 1 year.
Commodities are represented by the Bloomberg Commodity Index which is a composition of futures contracts on physical commodities. It currently includes a diversified mix of commodities in five sectors including energy, agriculture, industrial metals, precious metals and livestock. The weightings of the commodities are calculated in accordance with rules that ensure that the relative proportion of each of the underlying individual commodities reflects its global economic significance and market liquidity.
Cash is represented by the ICE BofA U.S. Treasury Bill 3 Month Index which is a subset of the ICE BofA 0-1 Year U.S. Treasury Index including all securities with a remaining term to final maturity less than 3 months.
U.S. Large Cap Equity is represented by the S&P 500 Index which is an unmanaged index comprised of 500 widely-held securities considered to be representative of the stock market in general.
U.S. Mid Cap is represented by the S&P MidCap 400® provides investors with a benchmark for mid-sized companies. The index, which is distinct from the large-cap S&P 500®, measures the performance of mid-sized companies, reflecting the distinctive risk and return characteristics of this market segment.
U.S. Small Cap Core Equity is represented by the S&P 600 Small Cap Index which is a measure of the performance of the small-cap segment of the U.S. equity universe.
International Developed Markets is represented by the MSCI EAFE Index is an equity index which captures large and mid cap representation across 21 Developed Markets countries* around the world, excluding the U.S. and Canada. With 799 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. Emerging Markets is represented by the MSCI Emerging Markets Index captures large and mid cap representation across 24 Emerging Markets (EM) countries*. With 1,386 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.
Value is represented by the S&P 500 Value Index which is a subset of stocks in the S&P 500 that have the properties of value stocks.
Growth is represented by the S&P 500 Growth Index which is a subset of stocks in the S&P 500 that have the properties of growth stocks.
U.S. Government Bonds are represented by the Bloomberg U.S. Government Index which is an unmanaged index comprised of all publicly issued, non-convertible domestic debt of the U.S. government or any agency thereof, or any quasi-federal corporation and of corporate debt guaranteed by the U.S. government.
U.S. Mortgage-Backed Securities are represented by the Bloomberg U.S. Mortgage-Backed Securities (MBS) Index which covers agency mortgage-backed pass-through securities (both fixed-rate and hybrid ARM) issued by Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC).
U.S. Investment Grade Corporate Bonds are represented by the Bloomberg U.S. Corporate Investment Grade Index which is an unmanaged index consisting of publicly issued U.S. Corporate and specified foreign debentures and secured notes that are rated investment grade (Baa3/BBB- or higher) by at least two ratings agencies, have at least one year to final maturity and have at least $250 million par amount outstanding.
U.S. High Yield Corp is represented by the ICE BofA U.S. High Yield Index tracks the performance of below investment grade, but not in default, U.S. dollar denominated corporate bonds publicly issued in the U.S. domestic market, and includes issues with a credit rating of BBB or below, as rated by Moody’s and S&P.
Floating Rate Bank Loans are represented by the Morningstar LSTA Leveraged Loan 100 Index. The index represents tradable, senior-secured, U.S.-dollar-denominated non-investment-grade loans.
Global Equity is represented by the MSCI All World Country (ACWI) Index which is defined as a free float-adjusted market capitalization-weighted index that is designed to measure the equity market performance of developed and emerging markets. The MSCI ACWI Index consists of 48 country indices comprising 24 developed markets countries and 24 emerging markets countries.
Emerging Markets Equity is represented by the MSCI EM Index which is defined as a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets countries
Intermediate Term Municipal Bonds are represented by the Bloomberg Municipal Bond Blend 1-15 Year (1-17 Yr) is an unmanaged index of municipal bonds with a minimum credit rating of at least Baa, issued as part of a deal of at least $50 million, that have a maturity value of at least $5 million and a maturity range of 12 to 17 years.
U.S. Core Taxable Bonds are represented by the Bloomberg U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and non-agency).
EU Corporate is represented by the Bloomberg Euro-Aggregate Corporates Index which is a benchmark that measures the corporate component of the Euro Aggregate Index and includes investment grade, euro-denominated, fixed-rate securities.
EM hard currency bonds are represented by the Bloomberg EM USD Aggregate – Sovereign Index, which is a subset of the Bloomberg Emerging Markets Hard Currency Aggregate Index, a flagship hard currency Emerging Markets debt benchmark that includes USD-denominated debt from sovereign, quasi-sovereign, and corporate EM issuers.
International developed markets bonds unhedged are represented by the ICE BofA Global Government ex U.S. Index which tracks the performance of publicly issued investment grade sovereign debt denominated in the issuer's own domestic currency excluding all securities denominated in U.S. dollars. In order to qualify for inclusion in the Index, a country (i) must be a member of the FX-G10 or Western Europe; (ii) must have an investment grade rating.
U.S. preferred securities are represented by the ICE BofA Preferred Stock Fixed Rate Index which tracks the performance of fixed rate US dollar-denominated preferred securities issued in the US domestic market.
U.S. TIPS are represented by the ICE BofA U.S. Treasury Inflation Linked Index which is an unmanaged index comprised of US Treasury Inflation Protected Securities with at least $1 billion in outstanding face value and a remaining term to final maturity of greater than one year.
High yield municipal bonds are represented by the Bloomberg HY Municipal Bond Index which is an unmanaged index made up of bonds that are non-investment grade, unrated, or rated below with a remaining maturity of at least one year.
S&P 500 Information Technology Index – a capitalization-weighted index that is composed of those companies included in the S&P 500 that are classified as members of the information technology sector based on GICS® classification.
S&P 500 Financials Index – a capitalization-weighted index that is composed of those companies included in the S&P 500 that are classified as members of the financials sector based on GICS® classification.
S&P 500 Energy Index – a capitalization-weighted index that is composed of those companies included in the S&P 500 that are classified as members of the energy sector based on GICS® classification.
S&P 500 Materials Index – a capitalization-weighted index that is composed of those companies included in the S&P 500 that are classified as members of the materials sector based on GICS® classification.
S&P 500 Industrials Index – a capitalization-weighted index that is composed of those companies included in the S&P 500 that are classified as members of the industrials sector based on GICS® classification.
S&P 500 Consumer Discretionary Index – a capitalization-weighted index that is composed of those companies included in the S&P 500 that are classified as members of the consumer discretionary sector based on GICS® classification.
S&P 500 Communication Services Index – a capitalization-weighted index that is composed of those companies included in the S&P 500 that are classified as members of the communication services sector based on GICS® classification.
S&P 500 Utilities Index – a capitalization-weighted index that is composed of those companies included in the S&P 500 that are classified as members of the utilities sector based on GICS® classification.
S&P 500 Consumer Staples Index – a capitalization-weighted index that is composed of those companies included in the S&P 500 that are classified as members of the consumer staples sector based on GICS® classification.
S&P 500 Health Care Index – a capitalization-weighted index that is composed of those companies included in the S&P 500 that are classified as members of the health care sector based on GICS® classification.
S&P 500 Real Estate Index – a capitalization-weighted index that is composed of those companies included in the S&P 500 that are classified as members of the real estate sector based on GICS® classification.
The HFRI Fund Weighted Composite Index which is a global, equal-weighted index of single-manager funds that report to HFR Database. Constituent funds report monthly net of all fees performance in US Dollar and have a minimum of $50 Million under management or a twelve (12) month track record of active performance.
The HFRI Macro (Total) Index includes managers with a broad range of strategies in which the investment process in predicated on movements in underlying economic variables and the impact these have on equity, fixed income, hard currency, and commodities markets.
Investing in commodities is speculative and involves a high degree of risk and not suitable for all investors.
Hedge funds often engage in leveraging and speculative investment practices that may increase the risk of investment loss, can be highly illiquid, and are not required to provide periodic pricing or valuation information to investors.
Hedge funds may involve complex tax structures and delays in distributing tax information. Hedge funds are not subject to the same regulatory requirements as mutual funds and often charge higher fees. Investing in commodities is speculative and involves a high degree of risk and not suitable for all investors. You could lose all or a substantial portion of your investment.
The Morningstar LSTA Leveraged Loan Index is a service mark of Morningstar, Inc. and has been licensed for certain purposes by Truist Bank. Morningstar and the Loan Syndications and Trading Association (LSTA) do not guarantee the accuracy and/or completeness of the <Insert name of Product> or any data included therein and shall have no liability for the use of such data.
Alternative strategies are not suitable for all investors. Many alternative strategies use sophisticated and aggressive techniques. Certain alternative strategies may be tied to hard assets such as commodities, currencies and real estate and may be subject to greater volatility as they may be affected by overall market movements, changes in interest rates of factors affecting a particular or currency, and international economic, political, and regulatory developments.
Investing in commodities is speculative and involves a high degree of risk and not suitable for all investors.
Truist, Truist®, GFO Advisory Services®, and Sterling Capital® are service marks of Truist Financial Corporation. All rights reserved. All other trademarks are the property of their respective owners.
©2024 Truist Financial Corporation. Truist®, the Truist logo, and Truist purple are service marks of Truist Financial Corporation. All rights reserved.
CN:2024 xxxx EXP 09-2025
Special Commentary
On September 10, our Investment Advisory Group experts – along with special guest Dan Clifton from Strategas – shared their perspective on the upcoming elections. It was an insightful discussion about Election 2024 and its impact on policy, the U.S. economy, and the markets.