YardDog Market Watch - Nov 5, 2024

US ECONOMY
US October Jobs Report Down ~88K vs. Expectations

Job creation slowed in October - only 12K jobs added vs. estimated 100K. Job creation impacted by recent hurricane activity (Helene and Milton) in the southeast.

Unemployment rate held at 4.1% (in line with expectations).

While job creation is at its lowest point since December 2020, the hurricane disruption as well as a Boeing employee strike contributed to the majority of the miss.

More subdued jobs growth in October may impact Fed’s rate cut decision. The Fed is meeting this week post-election (keep watch Nov 6-7).

Financial markets are speculatively pricing that the central bank will implement a quarter-point rate cut at each of its two remaining meetings this year.

All eyes on the election and Fed Meeting this week!  

ELECTION 
Potential Outcomes from This Election Cycle

Many Trump Era tax reforms, passed in 2017, are set to expire in 2025 and candidates have differing views on whether to continue or alter these tax reforms. 

Key provisions of concern are the 199A deduction and 1031 exchanges.  

The 199A deduction allows owners of pass-through businesses and partnerships, including CRE owners, to deduct up to 20% of their business income from their taxable income.

1031 "like-kind" exchanges enable real estate investors to defer capital gains taxes by reinvesting proceeds of sales into new purchases. 

Trump has endorsed making the 2017 tax cuts permanent. 

Kamala supports limiting 1031 exchanges and is a proponent of raising capital gains taxes on high-earning individuals to 28% (up from 20%).

If Republicans sweep, it likely would bring higher tariffs, and consequently higher interest rates, especially at the back end of the yield curve, due to inflation. 

Increased U.S. Treasury debt supply to finance a huge fiscal deficit also lifts longer-end yields.

As the election approaches, some investors are turning to swaptions—an option to pay a fixed rate and receive a floating rate—as a strategic move. This approach can be advantageous in a high-interest-rate environment, providing a useful hedge against interest rate risk.

We have our popcorn ready for tonight…. or whenever we find out who the winner is.

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