The countdown to Election Day continues to tick down. Politics, understandably, can rile up investors’ nerves, so be sure to check out our Investing and Politics report containing eleven simple slides summarizing the impact (or lack thereof) of DC on financial markets.

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Yesterday, Duke University in partnership with the Atlanta and Richmond Federal Reserve Banks published their CFO Survey results for the third quarter.  We discussed the bulk of the findings of the survey in last night’s Closer, including the chart below showing what CFOs reported to be their most pressing concerns. As shown, monetary policy continues to be the most common concern among CFOs albeit that share was the lowest in a year as rate cuts have begun.  Sales/Demand was the next most common response having picked up from only 8% the previous quarter to 9.6% in Q3.  Meanwhile, labor quality/availability as a concern has fallen steadily down to the lowest level in at least a year at 9.5%. Conversely, the share of respondents saying health of the economy is the most pressing concern more than doubled to 8.7% of responses.

There are not always the same reasons reported quarter to quarter, and Q3 featured a new and timely reason: Political Climate/Election.  Any political tensions in the US aside, this reason did rank low, accounting for only 3.8% of responses which is roughly equal with the share reporting non-labor costs and regulation as the biggest problems.

In addition to adding politics to the most pressing concern question, the survey featured a couple of election-specific special questions.  In response to the question “Has uncertainty related to the upcoming U.S. Presidential and Congressional elections led your firm to do any of the following to your investment plans?”, roughly two-thirds of firms reported that there has been no change. In other words, a vast majority of firms are pressing ahead with investment plans regardless of the election outcome. As we discussed in our Investing and Politics slides (which is worth checking out given the upcoming election), most of the time, politics is less impactful on business than we may initially think.

With that said, we would be remiss to not mention there are another 36.7% that reported they would either cancel, postpone, delay, or scale down investment plans on account of the election (note: respondents could select more than one option; percentages do not sum to 100). The survey additionally asked what CFO’s most important policy topic is for the election. Predictably, regulatory policy ranked as the highest followed by monetary policy. Fiscal policy and taxes were the next two issues to also account for more than half of responses.

Checking in on the election, today marks 40 days until Americans take to the polls.  Using data from ElectionBettingOdds.com which shows aggregate betting market odds for the outcome of the election, Harris is narrowly favored with a 51.5% chance to Trump’s 47.5% chance.  Whereas over the summer the election was looking like it could be a landslide for Trump with his odds closing in on a 70% chance of winning, since Biden dropped out with Harris as the replacement, Democrats have seen their odds improve considerably.  Over the past couple of months, there has been a decent amount of back and forth in betting markets’ favoritism and in the past several days those odds are again narrowing.  As shown in the second chart below, the odds at 40 days until the election are now the narrowest yet for the comparable point in time versus the 2016 and 2020 elections.  While the race is close currently, we would note that on the day before Election Day in 2016 and 2020, the odds widened out massively with Democrats heavily favored each time. Ultimately, those odds proved right once (2020) and wrong once (2016).  That means while betting markets can be a gauge on what will happen in November, the findings are far from a sure thing.

As we do at the start of each week, in Monday’s Closer we recapped the latest positioning data from the CFTC’s Commitments of Traders report.  In essence, this data highlights whether traders are in aggregate positioned long or short in various futures contracts.  In the charts below, we show the historical net percentage of open interest net long (short) for gold and silver futures.  Higher positive readings indicate that positioning is net long (more longs than shorts), while negative readings indicate that positioning is net short (more shorts than longs).

Last week’s data saw a number of big moves in commodity futures, but some of the most notable were in the precious metal space.  For starters, silver rose to 41.5% net long. That makes for the most optimistic positioning since April 2017. As gold continues to trade at record highs, traders have gotten extremely long at 57.7%, which is a record high in this series dating back to 1986!

As shown above, last week’s record high in gold positioning isn’t the first of the year.  So far in 2024, there have been five weeks with record highs.  As shown below, that is the largest number of record highs since 2009 when there were six.

Again, the new high in gold positioning comes as gold itself is trading at record highs. In the chart below, we show the price of gold during the history of the Commitments of Traders data and plot each time that positioning was also at a record high.  Of these occurrences since 2000, gold has usually been trending higher when gold long positioning reaches a record.  That was also the case in the 1980s, albeit that was early on in the CFTC data’s history, and as such, back then the net long readings were significantly lower than they are now.  The 1990s were a bit different as the strong reads on positioning came at a time when gold was sitting in a downtrend.

The conventional wisdom in investing suggests that individuals should reduce their exposure to equities as they age. This strategy is based on the principle that younger investors have a longer time horizon and can afford to take on more risk, while older investors, nearing or in retirement, should focus on preserving capital and minimizing risk. However, the chart below depicting equity and mutual fund shares as a percentage of financial assets by age group reveals a notable deviation from this traditional approach. Surprisingly, it is the oldest cohort of investors—those aged 70 and above—that maintain the highest levels of equity and mutual fund exposure, with the trend intensifying over time.  This data comes from the most recent quarterly Distributional Financial Accounts report from the Fed analyzing household wealth.

The discrepancy in equity market exposure for older and younger age groups can largely be attributed to the dramatic rise in the stock market over the past few decades, which has significantly boosted the wealth of older investors. However, it also underscores a broader trend: younger generations are notably underrepresented in equity markets. This is likely due to a combination of lower net worth, less savings, and perhaps even a more cautious approach to investing. Nevertheless, younger investors, with their longer investment horizon, should ideally have a higher proportion of their financial assets in equities to capitalize on potential long-term growth.  We would note, though, that the <40 age group now has a slightly higher share of equity market exposure than the 40-54 age band, and the reading for sub-40 investors has skyrocketed since COVID while the 40-54 age group has merely trended sideways over the last ten years.

In a similar vein, you might expect older investors to have more cash in the form of deposits and money market funds than younger age groups, but it’s the sub-40 group that currently has the highest percentage of cash at 20.2% of financial assets.  Back in the 90s, older investors carried much higher cash levels than younger investors, but that trend reversed in the years following the Financial Crisis.  The sub-40 group has held the highest cash levels of any age cohort for 12+ years now.  All things equal, we view it as bullish for the long-term health of the market that younger investors currently have lower equity exposure than most of their peer age groups and higher cash levels.  It suggests there’s plenty of money out there ready to “Get Invested!” at some point.

The charts above were featured in our Closer report sent to Bespoke Institutional subscribers on 9/23.  In addition to these two charts, we featured many more from the Fed’s latest quarterly report on household wealth that were quite interesting.  If you’d like to read the rest of The Closer from 9/23 and gain access to everything else Bespoke publishes for investors on a daily basis, sign up for a Bespoke Institutional trial today.