May 23, 2024
Dan Reiter, CFP®, CPA
“The causality typically does not go from the economy being affected by the election but instead the economy affecting the outcome of an election.” -Marci Rossell
Economist Marci Rossell, PhD, recently shared with us her expert perspective on the current economic landscape.
Here's a breakdown of her key observations and insights:
Marci started by addressing the critical issue of inflation. She noted that the inflation rate has seen a significant decrease, dropping from a high of 8.5% in June of 2022 to the current rate of 3.5%. However, this rate is still above the Federal Reserve's target of 2%, illustrating a persistent challenge for economic policymakers. The Federal Reserve has aggressively pursued a policy of raising interest rates to rein in inflation, and the fact that the target has not yet been met underscores the complexity of this task.
Amid these tightened monetary policies, Marci shed light on an intriguing paradox in the U.S. economy: Despite these efforts to control inflation, which can often slow economic growth, the U.S. economy has performed robustly. Over the past two years, Gross Domestic Product (GDP) has risen from $25 trillion to $29 trillion. This growth is a testament to the resilience of the U.S. economy and its ability to withstand the pressures of policy adjustments.
Shifting her focus to the stock market, Marci highlighted an unexpected trend. Despite the increase in interest rates, which typically discourages investment in stocks, the market has rallied. However, Rossell was quick to emphasize that the stock market does not always mirror the real economy's performance. She cautioned that economic fundamentals and stock market trends can diverge, and it is crucial to not equate the two blindly.
One of the most significant points in her discussion was the impact of rising interest rates on the commercial real estate sector. The shift towards flexible and remote work environments has reduced the demand for office spaces, leading to an increase in vacancies and a decrease in property values.
Despite these challenges Rossell expressed limited concern about the potential for these issues to spill over into the broader economy. She reasoned that the problems within this sector are widely known and reflected in current prices. Moreover, she pointed out that the commercial real estate sector's impact on the overall economy is relatively small, especially when compared to residential real estate.
As the conversation turned towards the upcoming election, Rossell highlighted that it's generally the performance of the economy that affects election results, not vice versa. A weak economy can motivate voters to replace the incumbent. However, she didn't see the upcoming election having a significant impact on the economy. Marci went on to mention that she rarely gives any active president too much credit when things are right, nor too much blame when things go wrong. Why? Much of the power over spending and legislation falls to Congress, not just the president.
In conclusion, Rossell provided a nuanced and balanced view of the current economic situation. While acknowledging the challenges posed by inflation and the commercial real estate market, she also drew attention to the resilience and robust performance of the overall economy.
As always, we appreciated Marci’s insights and perspective on current events and the economy. See below for the audio recording if you would like to listen to our call with Marci yourself.
Finally, if you have any questions about Marci’s comments or would like to discuss how these insights may impact your portfolio or investment strategy, please feel free to schedule a meeting with our team by giving us a call.
Marci’s commentary reflects her own analysis and views on the economy and her comments should not be construed as investment advice. Investment advice, financial planning, and retirement plan services are provided by Prosperity Planning, Inc., an SEC registered investment advisor. The information contained herein, including but not limited to research, market valuations, calculations, estimates, and other material obtained from these sources are believed to be reliable. However, Prosperity Planning, Inc. does not warrant its accuracy or completeness. The information contained herein has been prepared solely for informational purposes and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or to participate in any trading strategy. If an offer of securities is made, it will be under a definitive investment management agreement prepared on behalf of Prosperity which contains material information not contained herein and which supersedes this information in its entirety. Any investment involves significant risk, including a complete loss of capital and conflicts of interest. Certain risks are summarized below. The applicable definitive investment management agreement and Form ADV Part 2A will contain a more thorough discussion of risk and conflict, which should be carefully reviewed before making any investment decision.
