Tuesday’s election results will bring about a historic transformation in government that only happens periodically. Government policies will be revisited on a wide scale. Many pundits predict that there will be gridlock and not as much change as some would expect. However, the mandate that this election has brought is undeniable. The result will probably be some restored safety net spending and an expectation of higher taxes to raise revenues.
Another focus is on the regulatory front. Data centers have received the greatest attention in the near term. Changes will be made to siting of facilities and to the impacts on citizens including the topics of energy costs and water consumption and availability. Other areas that will be reviewed will be focused on the consideration of affordability.
Equity markets have taken a sharp hit from the results. Slowing down progress on the AI boom is not being taken lightly. We fondly reflect on the gains of the past and are now contemplating how to deal with the wall of losses that are pegged at $2.5 trillion.
No matter what party is in power, we must be mindful to not unduly harm the economy. An employment gain of 165,000 today was much greater than estimate. The unemployment rate has remained relatively benign at 4.1% in the latest reading. At least so far, AI has not caused significant disruptions. However, many businesses are now actively working to apply the technology in the workplace.
Another reason to not damper the progress of the AI industry is on the investment side. Many states including CA, NY, MA, CT, and others benefit directly to the revenue side when capital gains are robust. Even if the capital gains rate is raised back up again, no mainstream public official should want to curtail the underlying activities that bring in the revenues. Of course, the employment side is also key. These industries will need more employees as they grow and will contribute to the income tax take.
Markets are bouncing back today, but the road is long. By year end we should be in a better place from a market perspective.
Midst all this market turmoil, rates have declined from recent peaks. Some of this trend is due to the flight to safety. What has not declined is inflation. Calls to end the Iran war and to roll back tariffs would have positive effects. But these actions will not be taken by December. The Fed is still poised to tighten at the next meeting.
Municipal Matters
Many important considerations were decided at the ballot box this week. The approval of Amendment 3 in Florida will bring about changes in local government budgets in the state. The homestead exemptions are to be phased in over a couple of years so there is some time for the localities to adapt. The decline in local property tax yields will result in billions of reductions over time. Rating agencies will be carefully reviewing the local credits and considering the changes.
The proposed billionaires’ tax was rejected in California. Not everyone wants to lose all the entrepreneurs in Silicon Valley and in other industries in the state. Perhaps, some refashioned proposal will be introduced again in the future. Spending against the measure dwarfed the spending in support of the proposition.
Bond issues were well received across the nation. This outcome is often the case in good economic times.
Despite some recent softness in volume due to the election among other factors, volume should reaccelerate before year end.
John Hallacy
John Hallacy Consulting LLC
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