Where do we go after the election with inflation being a hot topic?

The usual consensus prior to an election is high uncertainty, which markets hate. Resulting in markets going up after elections. But that isn’t always the truth, especially in the short term after the election. Many believe post election markets shoot up. Ignoring the 2020 election due to Covid, both 2012 & 2016 traded even to slightly down for the 6 months following the election. In fact, the 2016 election took exactly 6 months to get back to the point it was on election day. The arrow is election day in 2015.

My point here? We still may not be in peak uncertainty, that is because of one main thing. How will the incoming president affect inflation? With neither candidate being the incumbent we can only make out best guess on how their policies will affect the economy. What I want you to focus on is removing politics & who will hold office from this equation & just look at this chart:

It’s simple, inflation peaks, and as it slows or bottoms, unemployment is next to peak. Now add one more layer to this. The green line indicates fed funds rate, which more often than not, the fed begins cutting interest rates prior to inflation peaking.

CPI then unemployment peak is the trend except the most recent tightening cycle. The fed was still not done raising rates, even after inflation was down 65% from its peak. Showing this time may and even is different than the past. Questions to ask yourself:

Was the rise of inflation during covid a fundamental issue, or just a supply chain shock?

Has the fed gone too far with its fiscal restrictions?

Should politics even be apart of the potential recession conversation?

Is this just the start in a large spike in unemployment?

Not only watch unemployment rates & predictions, but pay close attention to what companies are saying & if cracks start to form. Because when unemployment spikes, it will usually happen quickly.