How US stocks react to presidential elections
What the chart shows
This two-panel chart shows the historical performance of the S&P 500 from Election Day through Inauguration Day and into the early days of each new US administration. The top panel shows market trends when a Republican candidate wins, with shaded red and pink areas above and below to indicate variability in performance. The lower panel mirrors this for Democratic victories. By charting these periods, we can observe any patterns or anomalies in market response based on the winning party.
Behind the data
A central question during presidential elections is how the stock market would react to the outcome. For example, following Trump’s election in 2016, Bitcoin, equity futures and the US dollar experienced notable increases. This chart takes a broader view, focusing on market performance not only in the days immediately following the election, but also through the first 75 trading days of a new administration. Historically, when Republicans assume office, the S&P 500 has often shown an initial uptick until Inauguration Day, sometimes followed by a modest correction. Will history repeat itself this time around?
IMF flags rising debt levels as fiscal pressures mount
What the chart shows
This chart displays the debt-to-GDP ratio across various global economies, segmented into three sectors: general government, households and nonprofit institutions serving households (NPISHs), and non-financial corporations. Key groupings, such as the G20, Emerging Markets, and Advanced Economies are also highlighted to provide a broad perspective on global debt distribution.
Behind the data
In its October 2024 Fiscal Monitor, the IMF projects that global public debt will exceed $100 trillion by the end of the year, with the global debt-to-GDP ratio expected to approach 100% by 2030. Rapid debt accumulation is concentrated in major economies, including the US and China, but the pace and composition of debt vary significantly worldwide.
The IMF identifies several key risks to public debt: rising costs from technology innovation, climate adaptation, demographic pressures, political volatility, and optimism bias in economic projections. To address them, it has introduced a “debt-at-risk” framework to help policymakers assess various debt scenarios under adverse conditions.
The analysis shows that, under current fiscal policies, most countries will be unable to stabilize their debt-to-GDP ratios without further adjustments. The IMF recommends gradual, people-centric fiscal adjustments to safeguard growth, warning that deep cuts to public investment could harm long-term economic stability. However, countries with strong fiscal institutions are better positioned to protect critical investments, even during crises.
US government deficit surges despite strong economic conditions
What the charts show
Both charts use outlays and receipts data from the US Treasury to illustrate how government revenue supports current spending. The first chart breaks down the sum of government receipts over the past 12 months. It also highlights the $1.83 trillion deficit – the gap between revenue and spending.
The second chart builds on this, showing the 12-month rolling sum of receipts as a percentage of total spending and how the composition of these receipts has evolved over time.
Behind the data
Over the past year, the US government has spent $6.75 trillion but only collected $4.92 trillion in revenues, leaving a $1.83 trillion shortfall. This deficit, accounting for 27% of all government spending, is financed through the issuance of Treasury securities, effectively borrowing to cover the gap.
Such hefty deficit spending raises concerns about sustainability, especially given the current economic environment. The US economy is experiencing solid GDP growth, a healthy labor market and cooling inflation – conditions typically associated with lower deficit spending. However, the fact that the deficit remains so large during a period of relative economic strength suggests that it could balloon even further during the next downturn or recession. Without significant adjustments to revenue or spending, the government’s reliance on borrowing is likely to increase, adding further pressure to fiscal sustainability.
China’s credit surge may struggle to fuel growth
What the chart shows
The chart tracks China’s credit impulse (a measure of new credit as a share of GDP) offset by three months to align with the Li Keqiang Index, which measures total bank loans, electricity consumption and rail cargo volume. This reflects the strong five-year rolling correlation between the two measures.
Behind the data
China has rolled out fiscal measures, including bond issuances worth 6 trillion yuan ($850 billion), following earlier monetary steps. This move is expected to inject liquidity into the economy, possibly pushing the credit impulse into positive territory and spurring economic activity. However, with economists voicing doubts about the country meeting its 5% GDP growth target as we enter Q4 2024, the effectiveness of these measures remains in question.
Modest decline in US mortgage rates challenges expectations of housing market boom
What the chart shows
This chart shows consensus forecasts from Blue Chip Economics for the average US mortgage rate over the next six quarters. The blue line represents the mean forecast for each quarter. The grey box highlights the 25th to 75th percentile range, while the green box represents the 10th to 90th percentile range.
Behind the data
Even though the Federal Reserve (Fed) is expected to continue cutting interest rates over the coming quarters, US mortgage rates are projected to decline much more modestly. This is likely because the anticipated Fed Funds rate cuts have already been largely priced into current mortgage rates. As a result, the average mortgage rate is expected to decrease by only 34 basis points from now until the end of Q1 2026.
This forecast contradicts a common narrative in the US housing market, which suggests that decreasing interest rates will spark a new boom in mortgage demand. However, if mortgage rates do not drop significantly, this demand may not materialize as expected.
US dollar weakens against Asian currencies as Fed begins rate cuts
What the chart shows
This chart displays the year-to-date (YTD) performance of the US dollar (USD) against a range of global currencies. It ranks currencies from the largest YTD appreciation to the largest depreciation.
Behind the data
As the US labor market has been showing signs of softening and the Federal Reserve (Fed) has started its easing cycle with an oversized rate cut, the USD’s strength has begun to unwind. While the US Dollar Index (DXY) has remained above 100, the dollar has depreciated significantly against several Asian currencies, including the Malaysian ringgit (MYR) and Thai baht (THB), with drops of 5-8%. Conversely, the USD has appreciated the most against Latin American currencies like the Mexican peso (MXN), as well as the Turkish lira (TRY). As the Fed continues its dovish policy, the USD may face further downward pressure.