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Even with everything that the pandemic had to throw at the economy, the four-year electoral equity cycle, whereby the fourth year of the presidential term delivers the highest returns while the mid-term year is usually the ‘sweet spot’ in terms of cheapness, seems inescapable. Markets have a lot to digest in 2024, with the potential ramifications of an uncertain presidential race topping the list. Labour markets are also nearing peak conditions, with some indicators suggesting a slowdown in hiring. However, the US equity market has been exhibiting impressive second semester momentum so far. Despite some signs of slowing economic growth, primarily at the consumer level, earnings remain impressive. In some sectors like industrials and healthcare, labour costs are expected to increase in the near term, putting some pressure on profit margins and flattening equity returns. Expectations of a Fed cut later this year have boosted the valuations of almost all sectors — except utilities. Technically, the S&P 500 remains in a bull market and above its long-term uptrend, even after the eventful presidential debate that raised uncertainty as to whether the sitting president would — or rather is able — to stand for re-election. It seems as though the only thing that could upset the S&P 500 are the overbought conditions in the information technology sector, which could lead to a pause or pullback in this rally. If anything, the election seasonality pattern suggests that dips should be bought, as the S&P 500 tends to finish higher in an election year, especially if the first half of the year is as positive as it was in 2024.
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