Certainty and uncertainty are 2 of the main drivers of movement in the stock market. With geopolitical tensions, national political challenges and economic issues facing them, the US may be in store for some hefty uncertainty. Join us as we look at some of the potential uncertainties approaching in the US:
Debt Ceiling
It feels like recently the debt ceiling had to be raised in the US to prevent a debt default and government shut down, but we are fast approaching yet another one. Host Andrew Baxter explains that this may not be so straightforward at the moment given the Republicans hold the majority in the House of Representatives while the Democrats dominate the Senate. If there is no resolution, the government shutdown can have a major effect on the productivity in the country while printing more money to throw at the problem is tantamount to kicking the bucket down the road. The US political environment is certainly a tricky landscape to navigate at the moment but as it always seems to be, the debt ceiling remains likely to be raised.
The Upcoming Election
An election involving Donald Trump is likely to make waves and bring along with it an element of uncertainty. Given the difficult times currently happening in America and abroad, the leadership Americans choose in the upcoming election is likely to be important. Host Andrew Baxter explains that ahead of the election later in the year, there are already strange things beginning to happen. Firstly Robert F Kennedy is not being provided with Secret Service protection despite being a notable candidate who has thrown their hat in the ring. As the strongest polling candidate in the Democratic party, one would reasonably expect to see a security detail for that person. Despite the strangeness that has already happened and is set to continue, volatility in the market does not quite reflect this.
The Economy
Inflation has been a major headwind for the economy since coming out of Covid and it is a contributor of the US’s issues more recently. Inflation leads to higher interest rates which can hurt the hip pocket of everyone and Host Andrew Baxter notes that a recent major driver of inflation in the US has been elevated oil prices. Oil and energy costs are a major input cost for businesses so as their expenses go up, their profit margins are increasing. As a result, their only real solution is to pass those price increases onto consumers, charging more for the goods and services they provide. In turn, consumers are forced to spend more for the same goods which eventually leads to a slowdown overall as consumers have less money to spend. A major reason for the high oil prices has been OPEC, the oil producing countries, cutting the amount they are willing to supply repeatedly. As a result, with demand remaining the same, the price of oil has to go up.
Earnings
Every quarter in the US, investors turn their attention to corporate earnings. Current expectations for the upcoming earnings season for the S&P 500 are mostly flat when compared to earnings 3 months ago. Host Andrew Baxter points out however, that this flat expectation sits against last quarters earnings which above expectations, but were significantly negative in terms of earnings growth. It’s surprising to think the market can rally on earnings merely because they are above consensus despite them being negative. A major component of the rallying we saw though was likely hype around what earnings could look like in the future, but at some stage and not that far down the track, these businesses will need to show some of the benefits of AI in their earnings reports to really justify all of the money that has poured into the market on the hype.
Geopolitics
The war in Israel has been a major news piece over the last few days and with war comes uncertainty always. Host Andrew Baxter explains that there are not necessarily any major impacts to come from the market. We may seem some moves higher in oil prices but beyond that the fighting in Israel is not expected to have any major implications for investors involved in the US market. The US government is currently not getting involved with the conflict, however there may be future actions that need to be taken which could lead to further uncertainty.
