Merlin Weekly Macro: The countdown to 5th November
The Jupiter Merlin team discuss the US economy’s stubbornly high growth, what that might mean for November’s Presidential election.
While most other western economies are flirting with recession, the US is still powering along at the kind of growth rates that were not uncommon when interest rates were virtually zero and not 5.5%. The latest data released this week demonstrates the point: after that phenomenal annualised growth rate in the third quarter of 2023 of 4.9%, a more reasonable 2% annualised consensus rate was forecast for the fourth quarter; the initial published estimated outturn (yet to be finalised by the authorities) was in fact 3.3%. Full year GDP growth finished at 2.5%, well ahead of the 1.9% recorded in 2022; in the past decade, only 2015 (2.9%), 2018 (3.0%) and the extraordinary post-pandemic recovery year of 2021 (5.9%) have been higher.
Lies, Damned Lies and Statistics
On the other hand, the policy hawks, those in the higher-interest-rates-for-longer camp, say that nearly two years into the programme of significantly tighter policy, the consumer still isn’t getting the message. While the momentum in spending might be slowing, it is still growing at 2.8% and by now it should not be; further, in a tight labour market with unemployment steady at 3.7% (and by convention, a rate below 4% is seen by economists as ‘full’ employment on the basis that what remains is either not seeking work, is ineligible or is unemployable), wages are still rising and faster than the rate of inflation. Oh, and by the way, the most recent inflation print was up at 3.4%, not downwards, and headline CPI has done no better than trend sideways at a rate consistently between 3% and 4% since June of last year, stubbornly above the 2% target.
2024, a pivotal year
In any year this would be difficult to manage. In a Presidential election year, and particularly this one given the characters involved, what happens to the economy takes on a heightened sense of importance. “It’s about the economy, stupid” is that well-known trope of US presidential electioneering tactics. Among many other policy battlegrounds, Trump will be particularly keen to point to Biden’s fiscal recklessness, that the government has run out of money not once but twice in the past year; it should not be teetering on the brink of shutting down public services, it’s a national embarrassment. On the other hand, Biden will be able to point to a strong economy far outstripping America’s main competitors, rising wages (remember him standing on a picket line last year telling striking workers they were worth “a damned sight more that you’re being paid now”?), and promising the fruits of inward investment from the fiscal green incentives encapsulated in his Inflation Reduction Act. Why jeopardise all that? What Biden will be praying for as they head towards polling day in November is that Powell’s monetary tightening does not suddenly cause the economy to take a nosedive spelling disaster for Biden and handing electoral manna to Trump on a plate.
Bang! And they’re off.
Trump polarises opinion like no other. It is almost impossible for commentators not to have a view and therefore bias (either way), even in the mainstream media. In the aftermath of the Iowa caucus, for balance and moderation and a reasonably neutral view on Trump 2.0, the author listened with keen interest to Lord (Kim) Darroch, former UK Ambassador to the US and the UK’s one-time National Security Adviser. It can best be summed up as the rest of the West has to be prepared to both deal with Trump the disruptor and Trump the nationalist but also constructively to engage with him because the US remains the leader of the free world and NATO’s underwriter (looking at it another way, however much you dislike him, deriding and dismissing him as some latter day barbarian is entirely counterproductive; as he demonstrated in 2017 in his first term, his memory is long and his vindictive streak far-reaching; those such as Angela Merkel who were downright rude about him subsequently found themselves on the wrong end of his wit, in her case with a hefty US export tariff). Leaving aside domestic US policies, from an international perspective, Darroch noted the particular challenges of what we know to be of Trump’s agenda (and the easy thing about Trump is it’s all out there, absolutely nothing is hidden, there is no obfuscation): Trump will stop all military and financial aid to Ukraine and he will demand compensation from other NATO members to pay for the disproportionate quantity of US munitions and military hardware sent to Zelensky thanks to those countries not pulling their weight; he will abandon US membership of the Paris Climate Accord (“we’re gonna drill, baby, drill”); he wants to apply a blanket 10% tariff on all imports into the US; he will actively de-couple all US interests from China.
We have our own election in the UK to preoccupy us in 2024. But the real action of greater interest to global investors, is across the Atlantic. We will be developing the themes over the next few months in the countdown to 5th November. Controversial? Most certainly. Crazy? How can it not be, especially with Trump’s string of court cases and a cartload of criminal indictments. Consequential? You only need to consider Darroch’s observations to understand that a second-term Trump would potentially have far-reaching geopolitical and economic effects. But unlike 2016 and his win, and 2020 and his refusal to leave, in 2024 there are many fewer outright surprises with Trump. Unless he becomes the first President to be elected from jail!
Investment Perspective
The Jupiter Merlin Portfolios are long-term investments; they are certainly not immune from market volatility, but they are expected to be less volatile over time, commensurate with the risk tolerance of each. With liquidity uppermost in our mind, we seek to invest in funds run by experienced managers with a blend of styles but who share our core philosophy of trying to capture good performance in buoyant markets while minimising as far as possible the risk of losses in more challenging conditions.
Authors
![Amanda Sillars Jupiter Fund Manager and ESG Director Independent funds](https://www.jupiteram.com/uploads/2021/01/96f01f655a8de35f0c3eb2102c6a3cfd/amanda_sillars_350x350.jpg?r=684f93e5977a727670c1fa21d640fea0&v=1640779274)
![Algy Smith-Maxwell Jupiter Research Director Independent Funds](https://www.jupiteram.com/uploads/2020/06/6162cf8ec89b0753d316654c3403bcd9/algy_smith-maxwell_350x350.jpg?v=1640779072)
![John Chatfeild-Roberts Jupiter Co-head of Strategy Independent Funds](https://www.jupiteram.com/uploads/2021/01/e7456f93b5fbf12d1a95149a88299506/john_chatfeildroberts_350x350.jpg)
![George Fox Jupiter Assistant Fund Manager Independent Funds](https://www.jupiteram.com/uploads/2021/01/60e7b31ad73afe2c39b2c6c8b0d8789c/george_fox_350x350.jpg?v=1640780876)
![Alastair Irvine Jupiter Investment Director, Independent Funds](https://www.jupiteram.com/uploads/2021/01/2312f526c8a3d1a1c3195604038fdabc/alastair_irvine_350x350.jpg?v=1640778798)
![David Lewis Jupiter Co-head of Strategy Independent Funds](https://www.jupiteram.com/uploads/2021/01/d15bf39db17ee660c5f0266ec2fc3f1a/david_lewis_350x350.jpg?v=1640780302)
![Venetia Campbell](https://www.jupiteram.com/uploads/2023/05/cf08d06b5dae5b95d1ca9cc48e647a07/venetia-campbell_rgb_350x350px.jpg?r=200012e584620e492d211cdc7a698f1a&v=1707125295)
Jupiter Merlin Portfolios
Multi-manager portfolios constructed to deliver a range of specific outcomes.
The value of active minds – independent thinking
A key feature of Jupiter’s investment approach is that we eschew the adoption of a house view, instead preferring to allow our specialist fund managers to formulate their own opinions on their asset class. As a result, it should be noted that any views expressed – including on matters relating to environmental, social and governance considerations – are those of the author(s), and may differ from views held by other Jupiter investment professionals.
Fund specific risks
Important information
This document is for informational purposes only and is not investment advice. We recommend you discuss any investment decisions with a financial adviser, particularly if you are unsure whether an investment is suitable. Jupiter is unable to provide investment advice. Past performance is no guide to the future. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. The views expressed are those of the authors at the time of writing are not necessarily those of Jupiter as a whole and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. For definitions please see the glossary at jupiteram.com. Every effort is made to ensure the accuracy of any information provided but no assurances or warranties are given. Company examples are for illustrative purposes only and not a recommendation to buy or sell. Jupiter Unit Trust Managers Limited (JUTM) and Jupiter Asset Management Limited (JAM), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ are authorised and regulated by the Financial Conduct Authority. No part of this document may be reproduced in any manner without the prior permission of JUTM or JAM.