Kamala’s economic policy

This week, we had the first insights into Kamala Harris’ economic policy, revealed in snippets throughout the week. She is proposing a $6,000 child tax credit, a $25,000 first-time homebuyer subsidy, and potential price caps on food and groceries. Many administrations have attempted these price controls to combat price gouging. Historically, both Republicans and Democrats have attempted price caps with little success.

• The good news is Kamala’s policy doesn't seem too different than Biden’s
• We had written previously that Biden's and Trump’s economic policies were similar, which meant the election shouldn't have been much of a factor for markets
• Given Kamala’s policy is similar, this again puts the election as a low-importance event as it pertains to markets
• The over-arching concern remains, however, that both administrations would embrace spending and do nothing about our fiscal deficit
• The longer-term implications of the deficit and growing outstanding debt are a weak dollar, inflation, and the potential for higher bond yields

Insight into the consumer

Walmart's earnings report exceeded expectations, with U.S. same-store sales growth at 4.2% compared to the anticipated 3.4% and Sam's Club sales growth at 5.2%, surpassing predictions. Walmart also raised its guidance for fiscal 2025, now expecting growth between 3.75% and 4.75%, up from the previous forecast of 3% to 4%. This strong performance suggests that the consumer sector, which constitutes about 70% of the economy, remains robust, providing a positive signal to the markets.

• The positive data point is contradictory to the recent fears about a weakening consumer
• Just a few weeks ago, a weak jobs number scared markets
• Walmart’s numbers show us that, at least so far, the consumer is resilient
• This is important since the consumer is 70% of the economy

Inflation data in check

The Consumer Price Index (CPI) data released this week showed inflation at 2.9%, slightly below the expected 3%, with core CPI (which excludes food and energy) matching expectations at 3.2%. While the data indicates that inflation is stable and not worsening, prices remain elevated compared to pre-COVID levels, which continues to impact consumers' everyday spending. The stability in these figures was a positive sign for the markets, though the persistent inflation means that consumers are still dealing with higher costs.

• Inflation has been the main focus of markets for the last three years
• With CPI coming in as expected and continuing to trend in the right direction, the probability of future rate cuts increases
• The important thing is inflation has not spiked nor declined faster than expected
• It is important to note that prices are still 3% higher than last year
• Falling inflation does not mean prices will come back down to pre-covid levels

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