Renewed recession scare will disrupt stocks in ‘chaotic fashion’: SA Election Forum

The S&P 500 (SP500) is suitably hitting all-time highs with the U.S. economy in growth mode, but a flare-up in contraction fears will deliver an “abrupt” blow to large-cap equities, according to an analyst speaking at Seeking Alpha’s Election 2024 Investing Forum on Wednesday.

The benchmark (SP500) notched its 47th record-closing high recently, with sector leadership this year coming from Information Technology (XLK) and Communications Services (XLC), home to the Magnificent 7 tech stocks including Nvidia (NVDA) and Meta Platforms (META).

“The S&P 500 has a relatively binary model. If the economy is in recession or going into recession, the S&P 500 tends to vacuum lower really quickly, really violently, and really abruptly,” Eric Basmajian, investing group leader of EPB Macro Research, said in the forum’s “Stock Market Trends: What’s on the Ballot” session.

“The market being near all-time highs today is purely a symptom of the fact that the economy is not in recession right now, and market participants don’t fear a recession will be here in the very proximate future,” he said. “Should the economy go into recession or fears of recession resurface, the market will quickly dip in probably an abrupt and chaotic fashion.”

Basmajian expects a bear market to emerge if a recession materializes. The S&P 500 (SP500) nearly reached a correction this summer after the July jobs report stoked contraction concerns. Earlier Wednesday, the Commerce Department in its first estimate Q3 GDP said the economy grew by 2.8%, cooler than the 3% estimate.

The economy is a top concern for American voters as the U.S. presidential election wraps up on November 5. Vice President Kamala Harris and former President Donald Trump are each pitching their own spending and tax-cut plans they say are the best way forward for the economy.

“Whoever gets into power in the next couple of weeks, their first few quarters in office will likely be under the situation of an economy that is decelerating,” Basmajian said. “It’s still growing – by some measures, it’s growing about trend, but it’s declerating,” he said.

“The overall business cycle dynamics are unlikely to be significantly altered regardless of who’s elected,” he said, unless investors see “something really out of the box” with either Democrats or Republicans sweeping control of the White House and Congress and raising risk of material shifts in the dynamics of the business cycle.

The S&P 500 (SP500) is up +22% during 2024.

For investors looking to track the elections through market instruments, here are some politically driven Republican and Democratic exchange-traded funds:

God Bless America ETF (YALL)

American Conservative Values ETF (ACVF)

Point Bridge America First ETF (MAGA)

Democratic Large Cap Core ETF (DEMZ)

Unusual Whales Subversive Democratic ETF (NANC)

Unusual Whales Subversive Republican ETF (KRUZ)

Readers interested in investing topics tied to the upcoming election can find more information at the ongoing Seeking Alpha Investing Forum: Election 2024; please visit the event website.

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