Investor optimism is overshadowing concerns over the uncertain US election outcome as the Federal Reserve prepares for an anticipated interest rate cut this week.
This is the message from Nigel Green, CEO of deVere Group, one of the world’s largest independent financial advisory and asset management organizations, as Americans go to the polls today, and two days out from the Fed’s November meeting at which it’s expected to cut rates again.
The pan-European Stoxx 600 opened up, Asia-Pacific markets traded mixed overnight, while US stock futures were mostly flat.
“While the presidential election between Kamala Harris and Donald Trump is poised to have significant consequences, particularly if political gridlock ensues, markets are currently focusing on the more immediate boost expected from the Fed’s actions to support economic growth,” he comments.
The Fed is widely expected to lower its benchmark interest rate by a quarter percentage point at the conclusion of its two-day meeting this Thursday.
“This decision could provide the momentum needed to keep the economy on track, despite the looming election risks.
“Global investors appear to be weighing the central bank’s supportive stance more heavily than fears of a deadlocked Congress, with European stocks seeing modest gains and US futures holding steady,” says the deVere CEO.
“While the US election is undeniably a critical event, the potential for economic stimulus through lower borrowing costs is winning the attention of investors. A divided government or a contested election could lead to delayed policy decisions or even political stalemates, but for now, the focus remains on the Fed’s likely intervention to shield the economy from further weakening.”
The rate cut would lower borrowing costs across the board, including for mortgages, business loans, and consumer credit, giving both individuals and companies the incentive to spend and invest.
With inflation contained and labor market data pointing to the need for additional stimulus, the Fed’s gradual approach to easing is expected to prevent a recession while keeping inflation under control.
Nigel Green continues: “Investors are betting that the Fed’s actions will have a more direct and swift impact on the economy compared to the potential long-term effects of the election, where legislative changes could take months to unfold.”
The interest rate cut is expected to have a ripple effect on global financial conditions, as lower borrowing costs in the world’s largest economy could stimulate broader growth.
This is particularly important for international markets, many of which are closely tied to US economic performance.
“For investors, the Fed’s immediate actions are seen as the greater market-moving force for now,” concludes Nigel Green.
