Market Volatility and Antitrust Investigations
In a typical Presidential election year, the stock market follows a predictable pattern. The summer months, when the big conventions take place and candidates make grand promises, tend to see a rally in the market. However, come September, uncertainty sets in, and the market tends to drop until a clear winner emerges from the election. Once the winners are known, both in Congress and the White House, the market tends to soar. This year, however, the market experienced a sharp decline due to stock market disinformation.
Rumors of antitrust investigations by the Department of Justice (DOJ) targeting technology companies sent shockwaves through the market. Nvidia, among many other companies, was reportedly subpoenaed by the DOJ. However, Nvidia clarified that it had not received any such subpoena. The Biden Administration’s active pursuit of antitrust investigations as it nears its end has created uncertainty. It is worth noting that some of the DOJ lawyers involved in these investigations may transition to private practice after a new President is elected.
As a result of these rumors and uncertainties, the S&P 500 lost 4.25%, while the Nasdaq and Russell 2000 fell 5.7% last week. However, it is expected that the market will rebound this week due to being oversold. The launch of Apple’s new iPhone 16, which features a new Arm AI chip, is also expected to contribute to the rebound. This new chip will receive AI upgrades as they become available. Despite these positive factors, the European Union (EU) Court of Justice overturned a lower court decision that required Apple to pay $14.4 billion in back taxes to Ireland. Apple’s CEO, Tim Cook, has strongly opposed this decision, arguing that it amounts to double taxation.
The upcoming presidential debate is anticipated to be a political Superbowl. Issues such as border chaos, endless wars, inflation, and economic growth are likely to dominate the discussion. The candidate who can present themselves as sincere, believable, and effective in implementing change is expected to have an advantage. It is crucial that energy policy, particularly the war on natural gas, is thoroughly debated. The outcome of these debates could significantly influence the electoral college and ultimately determine the next President.
Another positive development is the un-inversion of the Treasury yield curve. Short, intermediate, and long-term Treasury yields have declined, putting pressure on the Federal Reserve (Fed) to cut key interest rates by 0.5% at the Federal Open Market Committee (FOMC) meeting on September 18th. Christopher Waller, a member of the FOMC, emphasized the importance of beginning interest rate cuts this month to address weakening in the labor market. He even expressed openness to a bigger rate cut if appropriate, highlighting the shift in risks toward employment.
Favorable Consumer Price Index (CPI) and Producer Price Index (PPI) reports are expected. Moderation in shelter costs and softer wholesale service and goods costs should contribute to these favorable indicators. The slow pace of the PPI compared to the CPI can be attributed to the importation of deflation from China. Economists are trained to combat deflation, but China is experiencing falling wages and entering a dangerous new stage of deflation. This situation may require substantial stimulus measures to overcome the debt-deflation challenge.
Ultimately, the key to winning the election and becoming the next President lies in Pennsylvania. The state’s significant energy industry, employing approximately 250,000 people in fracking, natural gas extraction, and pipelines to LNG terminals, makes it a decisive factor. The Biden Administration’s ban on LNG expansion earlier this year has put Kamala Harris at a disadvantage in Pennsylvania. Although she has reversed her stance on fracking, the initial ban has made her unpopular in energy-rich Western Pennsylvania. The candidate who is most supportive of domestic energy, sincere, and believable is expected to win the Presidential debate and alleviate some of the election uncertainty that has been impacting the stock market.
In conclusion, the stock market’s recent decline can be attributed to rumors of antitrust investigations and uncertainties surrounding the upcoming election. However, there are opportunities for a rebound, particularly with the launch of Apple’s new iPhone and potential interest rate cuts by the Fed. The outcome of the presidential debate and the candidates’ positions on key issues, such as energy policy, will play a significant role in determining the next President. Pennsylvania’s energy industry will be a crucial battleground, and the candidate who can effectively address the concerns of this sector is likely to gain an advantage.
