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Market Turmoil as Election Weighs In mid-July, the stock market, seemingly in solid shape for the year to date, experienced its worst week since April 2024. The selloff followed the failed assassination attempt on former President Trump, yet the two events seem oddly uncoupled. As the S&P 500 and Nasdaq pitched lower, most investors reiterated their belief that stocks had been overdue for a correction and that the selling was healthy rather than triggered by exogenous events. The election experienced an even bigger shift with President Biden's decision to exit the race rather than run for a second term. This decision was certainly not a shock and, as the president's poll numbers had deteriorated. So far, investors have greeted two significant events in the election with a muted response, as the focus remains mainly on the Fed's forthcoming meetings. The Market in July The S&P 500 had been up 18.8% for the year at its closing peak on 7/16/24. That was two full trading days (Monday and Tuesday) after the assassination attempt on the former president on Saturday 7/13/24 -- further contributing to the sense that the subsequent selling in stocks was unrelated to the events of that day. As of the market close on 7/19/24, the S&P 500 was up 15.4% year to date on a capital-appreciation basis and 16.4% on a total-return basis (with dividends). Before 7/13/24, the market already had undergone a shift in tone. Investors had started rotating away from the so-called 'Magnificent Seven' stocks, first remaining within other Information Technology sector niches and stocks and then gradually broadening out to other areas while taking tech profits. As of early in July, the Russell 2000 was little changed for the year. Between July 9 and July 16, the small-cap index exploded higher by about 11%. On the blue-chip front, the DJIA outperformed the broader S&P 500 during the mid-July selloff week, edging 0.2% higher while the S&P 500 was down 2.3%. And for the previous month, the Dow's 2.9% gain eclipsed the 0.7% advance for the S&P 500. Also on a total-return basis, the Nasdaq has maintained its advantage over blue chips, with an 18.6% total gain in the year to date. But the Nasdaq's margin over the broad market is uncommonly narrow in a year of double-digit gains and growth leadership. In 2023, for example, the Nasdaq's 43.4% capital gain beat the S&P 500's 24.2% gain by almost 20 points. And in 2020, the Nasdaq's 43.6% gain more than doubled the S&P 500's 16.3% advance. Also as of 7/16/24, the DJIA was up 8.0% on a total-return basis. The Dow was up 1.1% year to date as recently as the final day of May, and much of its gain in 2024 has come in the month of July. Growth stocks continue to beat value stocks, but the difference between the Large Cap Wilshire Growth and Value indices has tightened from a gulf to a gap. At the sector level, Information Technology (up 27.0% at 7/16/24) and Communication Services (up 23.5%) have maintained their leadership over the broad market. In an encouraging sign of improving breadth, five other sectors -- Financial, Utilities, Energy, Consumer Staples, and Industrials -- are up 10%-15%. And Healthcare is right behind, with a 9.4% gain. Even Real Estate, the lone negative sector through the first half of 2024, has pivoted to a 3% year-to-date gain. According to Argus' Chartered Market Technician Mark Arbeter, the major indices worked off extreme overbought conditions in the selloff week. But that came at the cost of breaking uptrends in 14-day relative strength and daily moving-average convergence-divergence. The S&P 500 during the selloff week broke below its 21-day exponential moving average for the first time since April 2024. Despite the pullback, the market's uptrend off the lows from early May remains intact. The high-beta Nasdaq 100 remains a bit more fragile, having broken below its May lows. Many Nasdaq 100 component stocks are at or below 50-day trendlines. If many of these issues break decisively below support, rotation away from the year's leading sectors could persist for some time. A President Exits the Campaign Following the announcement that a current president would not seek reelection, the S&P 500 surged by 2.1% and the index finished the year up over 15%. But we not talking about President Biden. On March 31, 1968, President Lyndon B. Johnson stunned the nation when he announced he would not seek, nor would he accept, his party's nomination to be president for a second full term. He had come to office upon the assassination of President John Kennedy in November 1963, and then defeated Republican Senator Barry Goldwater a year later in the November 1964 election. Over half a century later, the reason President Johnson chose not to run remains a topic for debate. Officially, President Johnson indicated he could not conduct the war in Vietnam and actively campaign at the same time. Political pundits at the time pointed to Johnson's deep unpopularity as hundreds of U.S. soldiers were dying weekly in Vietnam. Many believed Johnson would lose to the Republican candidate Richard Nixon or to one of the anti-war candidates, such as Eugene McCarthy or Robert Kennedy, from within his own party. Following Robert Kennedy's assassination and a Chicago convention marked by riots and turmoil, Hubert Humphrey became the Democratic candidate despite not having won a single primary (he did win some state caucuses). Turning back to current events, should Vice President Kamala Harris become the nominee, as seems probable, she most likely will continue to promote the Democratic Party's principles. That should, for the most part, allow the growing number of undecided citizens the opportunity to cast their vote in a fair fight that is based on more-typical agenda considerations. Shifting Perceptions of the Fed Timeline As we prepared this publication, the Democratic Party was seeking to unite behind a new candidate; President Trump continued to campaign; and investors mainly have sidelined the political turbulence. The focus for investors, as it has been all year, remains the timeline for the Fed's widely anticipated first interest-rate cut in four years. For the July 30-31 FOMC meeting, the CME FedWatch Tool indicates a less than 3% probability that the first rate cut will come in July. After no meeting in August, the FOMC meets again on September 24-25. The FedWatch Tool indicates a 94% probability of a single quarter-point rate cut at the September meeting. For most of 2024, investors had been anticipating no change in Fed monetary policy at the November FOMC meeting. But the November 7-8 meeting falls two days after the November 5 elections date; and that earlier thinking may be changing. As of 7/16/24, target rate probabilities for the November FOMC meeting are 1.7% for no change from the current 5.25%-5.50% tendency; 43.1% for 5.00-5.25%; and 53.8% for 4.75%-5.00%. For the final FOMC meeting of 2024, to be held on December 18-19, target rate probabilities are 6.8% for 5.00%-5.25%; 45.1% for 4.75%-5.00%; and 46.7% for 4.50%-4.75%. That means the market now sees a nearly 50% chance that the Fed as of year-end 2024 will have cut the Fed funds rate not two but three times, for a total 75-basis-point rate reduction. Conclusion Elsewhere, the economy continues to grow at a low-single-digit rate consistent with our 1.7% GDP growth forecast for 2024. The consumer remains under pressure from high interest rates and the overhang of high prices. The housing sector is operating at 60% of past peak levels. Unemployment remains low by historical standards, and wages continue to grow faster than inflation. The second-quarter earnings season is unfolding about as expected, with prospects for high-single-digit to low-double-digit percentage growth on an annual basis. All of that is about status quo compared to the data and forecasts of recent months. Some things have changed, of course. At mid-year 2024, the presidential election featured Donald Trump versus Joe Biden. One of those candidates came within a fraction of being assassinated; the other is no longer in the race. The market does not seem to be giving any of that much attention, likely due to the subtle but undeniable shift in the Fed's perceived timeline.

Fiserv is a leading provider of core processing and complementary services, such as electronic funds transfer, payment processing, and loan processing, for US banks and credit unions, with a focus on small and midsize banks. Through the merger with First Data in 2019, Fiserv also provides payment processing services for merchants. About 10% of the company’s revenue is generated internationally.

Buy the rumor, sell the news. That seems to be the strategy for investors in election years. Our study of monthly and quarterly returns since 1980 found that in the third quarter of election years, stocks rise on average 2.1%. That compares to a non-election year decline of -0.3%. Not bad. However, in the fourth quarter of election years, we found that stocks gain only 1.8%, compared to gains of 5.4% in non-election years. Why? Investors generally favor continuity, and an election year offers a real opportunity for change in direction, whether it's tax or fiscal policy, antitrust philosophy, or a certain regulatory focus. As this round of presidential debates gets under way, odds-makers are favoring a return to the White House for former President Donald Trump, but there's a lot of time before voters head to the poll and the race is likely to be close. This has been an important year for elections around the globe and for democracy as well. In India, Narendra Modi was re-elected Prime Minister, but his party lost its parliamentary majority. Mexican voters elected its first woman president, Claudia Sheinbaum. South Africans returned African National Congress candidate Cyril Ramaphosa to the presidency, but only after a last-minute broad-based coalition emerged to finalize the deal. French and English voters are headed to the polls and will determine the fates of their parliaments. At Argus, our bullish outlook for stocks in 2024 is not necessarily based on a particular winner in this fall's U.S. presidential race, but rather on the expectation that the time-tested and time-honored election process will produce a leader for the country.