Navigating Election Year Volatility: Insights from the Q3 2024 Market Intel Report

Can a presidential election year bring stability to your portfolio? Find out how historical trends and informed strategies can guide you through the noise. In this episode, we explore the third quarter 2024 market intel report, revealing that global equity markets have returned a solid 10% so far. Despite the usual election-year volatility, we underscore the critical importance of maintaining a diversified investment strategy. Learn why focusing on fundamental market drivers, rather than short-term political distractions, is key to long-term success. We also delve into the Federal Reserve's actions in the current economic climate, discussing the implications of persistent inflation and rising interest rates. 

Navigating market uncertainty with confidence is crucial, especially in an election year. We provide valuable insights on staying committed to your financial goals amidst the political noise. Discover why historical data suggests that presidential election years aren't necessarily detrimental to market performance. Also, learn the importance of discussing your risk tolerance and any concerns with your advisor to make necessary adjustments to your portfolio. Stay on track with your investment strategy by aligning it closely with your needs and comfort level. Reach out to our team with any questions, and we'll reconnect next quarter to continue guiding you through the financial landscape.

Advisory services are provided through Prosperity Capital Advisors LLC (“PCA”) an investment advisor registered with the United States Securities and Exchange Commission (SEC). Views expressed herein represent the opinions of PCA and are not intended to predict or depict performance of any particular investment.

All data provided, including any reference to specific securities or sectors, is provided for informational purposes and should not be construed as investment advice. It does not constitute an offer, solicitation, or recommendation to purchase any security. Consider your investment objectives, risks, charges and expenses before investing. These views are as of the date of this publication and are subject to change. Past performance is no guarantee of future performance.

Chapters

• 0:25 2024 First Half Market Recap
• 3:04 Investment Considerations During an Election Year
• 6:51 The Economy Drives Monetary Policy, Not Elections
• 8:52 Tracking Economic Trends in Anticipation of the Fed’s Next Move

Transcript

Speaker 0: 0:06

Hello everyone. This is Dave Allison. I hope you're having a wonderful summer. In this video we're going to be going through our third quarter 2024 market intel report. But before we dive into some of the key themes that I know are on the minds of investors today, I want to just start off by recapping where we've been so far this year. It's been a volatile year, a lot of uncertainty. We know we're in a presidential election year, but so far the stock market has rewarded those who have stayed the course and remained invested. If we look at the global equity markets, they've returned about 10% for the first half of this year and if we look at global bond markets, they've returned about 2% for the first half of this year.

Speaker 0: 0:58

Now, if we look a little deeper into equities in the United States, there's really three major indexes that we track. The S&P 500, which is comprised of the 500 largest growth stocks in the United States, returned about 15% in the first half of the year. The NASDAQ, which is really a technology concentrated index, technology concentrated index returned over 18% in the first half of the year. And last but not least, the Dow Jones Industrial Index returned about 4.8% for the first half of the year. So, of course, the major differences between these indexes are what stocks that they hold and the concentration of those stocks. For example, in the NASDAQ, it's mostly technology-oriented stocks. It's got larger concentrations in some of the big tech-heavy stocks that have had tremendous increases in value this year, like Nvidia, meta, google, apple, whereas, of course, the Dow Jones Industrial Index might not hold those stocks or might just hold a lower allocation of those stocks. And so, all in all, the first half of the year has turned out to be a really good start for stock market investors. Now, for most of our clients, they're in a diversified portfolio. There's investments that represent everything indexes like the S&P 500, the NASDAQ or the Dow Jones. There's also bonds. For example, a more moderate allocation would be 60% equity, 40% bonds and, again through the first half of the year, a portfolio structured like that would have seen a return of about 6.5%. Now, as we know, there are some key headwinds as we go into the second half of the year here, a lot of uncertainty, and that's what we're going to talk about in this video Some of the key themes that are on the minds of investors today, and the first one is, of course, investment considerations in an election year.

Speaker 0: 3:07

By design, elections have clear winners and losers, but the real winners are the investors who avoided the temptation to wait out the election year jitter and instead they stay the course and remain invested for the long haul. What we've seen is that markets have historically performed quite well during an election year. If we go all the way back to 1928 and we look at the S&P 500 index again the 500 largest companies in the United States in an election year they've averaged about 11.5% return. Now, if we contrast that to a non-election year, it's been about a 12% return. So there isn't much statistical difference in the stock market return in an election year versus a non-election year.

Speaker 0: 4:06

Now, I know this year seems to be more divisive than ever in terms of the election and what's at stake, but the reality of it is people care about politics, but the market does not. Stocks tend to do well in election years. The stock market has been positive in 20 of the 24 last election years. If we look at the four election years where the stock market was negative, three of those four years it's been periods of economic crisis. The three years are 1932, 2000, and 2008. And so, again, what we need to keep consideration of is that we know there's going to be a lot of noise politically out there, but that noise isn't the primary driver of stock market returns, and whoever is in office is not the primary driver of stock market returns. Yeah, it could have some impact, but there's many other things, like the innovation of these companies and what's going on from a macro level, that really end up driving the company earnings and power their stock prices.

Speaker 0: 5:32

Now, in the near term, political agendas could help boost individual sectors, especially in the case where one party controls the White House and Congress. For example, as you can see on the screen, maybe a party gets in office and controls the White House and Congress that's in favor of defense spending. That could certainly boost the aerospace or defense sector. Or maybe a party is in control of the White House and Congress that favors the continued efforts of the Inflation Reduction Act that President Biden passed. That could favor sectors like renewable energy or tech manufacturing. Tempting to position portfolios around political outlook for certain sectors isn't likely to be a winning strategy, as party goals are not the only factors influencing company results. Investors are better served tuning out the election noise and focusing on the long-term fundamental drivers of the stock market.

Speaker 0: 6:51

The next thing that I want to talk about is monetary policy and whether the economy is driving monetary policy or if elections are driving monetary policy. We all know that we're in a heightened interest rate environment and that the Federal Reserve has been tasked with doing whatever they can to balance jobs, the economy and reducing inflation, and we also know that the stock market has expected some interest rate cuts. Now what we've seen from a macro trend position is that inflation has been more persistent, it's been harder to bring down and that's caused the Fed to keep interest rates higher for a longer period of time, going into this year. We talked about in some of our market intel reports that the market was predicting three, four, maybe even five rate cuts in 2024. Here we are, in July as I'm recording this, and now we're talking about one, maybe two rate cuts, and obviously that has an impact on the stock market and the valuations of companies. Now what's important to note is that the US Federal Reserve has not hesitated to enact changes in monetary policy during an election year, and 2024 is likely to be no different, should the economic picture warrant it. Only one time since 1980 has the central bank not adjusted interest rates during a presidential election year, and that was back in 2012, when rates were near zero and the US was still recovering from the global financial crisis. In each instance, whether rates were hiked or cut, the economy, and not political motives, were the primary driver behind the action.

Speaker 0: 8:52

Lastly, I want to talk about some of the trends that we're looking at Now. There's no shortage of trends that are out there that you have the opportunity to follow, but the three big ones that we're constantly looking at and I've mentioned this in other videos are number one, the economy, measured by GDP, gross domestic product, our overall growth. Number two, the consumer sentiment. And then number three, the labor market. Right and so tracking the trends using a handful of key indicators can help investors just keep a pulse on the health of the overall economy and therefore the likelihood of shifts in monetary policy Throughout much of 2024,. Broad economic resiliency combined with sticky inflation has tempered the expectations for the timing and the magnitude of rate cuts.

Speaker 0: 9:45

Interest rate cuts In the FOMC's summary of economic projections following June's meeting, the dot plot indicated that one interest rate cut is expected in 2024, down from three following their meeting back in March. More recent trends show a growing yet slowing economy and while economic data, and therefore expectations for interest rates, can shift quickly, financial markets should benefit over time from a very resilient and dynamic US economy. Now, this doesn't mean we won't see short-term volatility in the United States market. But again, all signs are continuing to point to a reduction in overall inflation and hopefully that should give the Federal Reserve the confidence that they need to start lowering interest rates Again. Lowering interest rates could be good for overall stock valuations and a good driver for long-term growth of the market.

Speaker 0: 10:55

So I hope you found this quick market intel report to be valuable. Again, the common trend is that there's going to be a lot of noise, there's going to be a lot of political uncertainty as we lead into the November election. But two things I want you to know. Number one, a presidential election year does not necessarily mean a bad year for the market, no matter what side of the aisle you're on. And number two, stay the course with your goals and objectives. If you're uncomfortable with the amount of risk or volatility in your portfolio, have a conversation with your advisor. You could reallocate or change around strategies based on what your needs, your goals and objectives are, because, at the end of the day, the most important thing is that you're comfortable with your investment approach. If you have any questions, please don't hesitate to reach out to our team and I'll see you next quarter.