Why 2024 Is Not 2016

Highlights

• Market outcomes following a GOP sweep in the November election won’t be like 2016

• Consumer frugality and financial strain highlight key risks to the holiday spending outlook

• Bullish signals align behind our “cocooning” theme

• A low hiring rate is not a sign of a healthy labor market

Key Takeaways

Focus on the BoC and the Beige Book

• The keys today are (i) the Bank of Canada’s policy meeting and (ii) the release of the latest Fed Beige Book. The consensus is firm that the BoC cuts rates via a jumbo -50 basis point reduction to 3.75%, and the Beige Book will provide a check on the strength apparent in the recent U.S. economic data releases.

Factors Impacting Recent Bond Market Trends

• The bond market has succumbed to a variety of forces over the past month: (i) the Fed moved too far in its recent rate cut; (ii) a reassessment of how much more easing is needed; (iii) a string of better-than-expected economic data; and (iv) investors latching onto reflationary trades they think will work in the event of a Trump win.

Misconceptions Surrounding the Reflation Trade

• People tend to forget that this reflation trade was front and center the last time Donald Trump took office and yet, point to point, the inflation rate in his four-year tenure managed to decline from +1.7% YoY to +1.2%; the core inflation rate eased from +2.1% YoY to +1.6%. What is being missed are the offsets to the cost effects of tariff increases from stepped-up deregulation and the supply-side capital formation impact from lower top marginal corporate tax rates.