Decoding the U.S. Economy's Resilience: A Q1 2024 Market Intel Report with Dave Alison | Episode 14

In this episode, Dave Alison reflects on 2023 and shares our Q1 Market Intel Report. We're peeling back the layers on inflation's retreat, robust consumer spending, and a labor market that's standing strong against the odds. Dave doesn't just share the hard numbers; he brings clarity to what these trends mean for the year ahead, especially with whispers of Federal Reserve rate cuts stirring the air. 

Armed with historical data that spotlights the stark contrasts in stock market performance after a rate cut during recessionary and non-recessionary times, Dave guides us through the labyrinth of the stock market's response to interest rate tweaks.

Lastly, as the presidential election looms over us with its aura of uncertainty, Dave dissects the potential impacts—or lack thereof—on the economy and your investments. This is your gateway to understanding the subtle yet significant shifts that could shape your financial future in 2024.

The three major themes discussed are:
👉 The state of the U.S. economy and what's ahead
👉 What the start of rate cuts could mean for markets
👉 The potential market impact of the presidential election

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The information provided in this presentation is not intended to be individual investment advice or legal advice.  The information provided is for informational and training purposes only.

Investment advisory services are provided through Prosperity Capital Advisors LLC (“PCA”) an investment advisor registered with the United States Securities and Exchange Commission (SEC). For a detailed discussion of PCA and its investment advisory fees, see the firm’s Form ADV and Form CRS on file with the SEC at www.adviserinfo.sec.gov. The views expressed herein represent the opinions of PCA and are not intended to predict or depict performance of any particular investment.

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.

Episode Transcript

Dave Alison (00:12):
Hello and happy new year.
This is Dave Allison, founderand CEO of Allison Wealth
Management, and I want towelcome you to our Q1 2024
Market Intel Report.
In this report, we're going todiscuss the three key themes
that are on the minds ofinvestors today, the first one

(00:33):
being the overall resiliency ofthe US economy In 2023,.
I delivered a market Intelreport to start the year and I
shared a statistic that thenumber of economists that
believed that we were going toenter a recession in 2023 was at

(00:55):
an all-time high.
We had soaring inflation, theFederal Reserve was about to
embark upon a very aggressiveinterest rate hiking campaign to
try to curb inflation, andthere was a lot of people that
were quite negative on theoutlook of the United States

(01:17):
economy.
Well, here we are in early 2024, looking back, and, of course,
we saw that the FederalReserve's battle on inflation is
working.
We ended 2023 at a coreinflation of near 3% and, in the
face of higher interest rates,we saw that US consumers kept

(01:40):
spending, which really drove theoverall growth in the US
economy.
Of course, now our attentionturns to can those trends
continue into 2024?
And I want to look at a coupledata points, of course, of where
the state of the US economy istoday and, most importantly,

(02:03):
what's ahead.
As I mentioned earlier,inflation continues to come down
and as long as we stay on thatdownward trend, that should lead
to a healthy US economy.
We saw retail spending continueto power the United States
economy, producing good growth.

(02:23):
But of course, as we all know,typically with the economy, the
biggest risks to the economyoften are the ones that we don't
see coming.
So there are some potentialsthat this picture could change.
But as of right now, we see avery strong and healthy labor

(02:45):
market.
Consumer financial balancesheets seem to be pretty healthy
, although we're starting to seea slight rise in credit card
delinquencies.
Of course, retail spendingseems to be quite healthy, which
overall, tend to lead toeconomic growth.

(03:05):
Now that turns our attention toour second key theme on the
minds of investors today whathappens if and when the Federal
Reserve starts to cut interestrates.
The FOMC is projecting a fewinterest rate cuts in 2024.

(03:26):
You can see, based on the dataon this chart, they are
forecasting a year end interestrate of about 4.6%.
Now the overall market isactually forecasting and
anticipating a little bit moreof an accelerated cut to
interest rates.

(03:47):
They are forecasting thatinterest rates start to be cut
earlier in the year, potentiallyin the second quarter, and we
actually end the year at about3.6%.
So again, a little bit of avariance between what the FOMC

(04:07):
is projecting and what theoverall markets are anticipating
.
But what I want to talk about iswhat we've seen historically
from the stock market if andwhen the Federal Reserve does
start to cut interest rates.
Now some people believe thatthe Federal Reserve will not

(04:30):
start to cut interest ratesuntil there's a certain level of
pain felt in the economy.
In this chart it shows theaverage stock market return over
time when the Federal Reservestarts to cut interest rates.
So what we've seen since 1965is that on average, the stock

(04:54):
market has actually produced apositive return of 5% from the
12 months following the firstinterest rate decrease.
Now to contrast that kind ofthe tale of two stories here are
that if the US economy goesinto a recession, what we've

(05:18):
seen is the stock market onaverage has delivered a negative
3% return in the 12 monthsfollowing that first interest
rate cut.
But to the contrary, if theeconomy does not go into a
recession, if we do experiencethat soft landing, then we've

(05:44):
seen the market deliver, onaverage, about a 15% return in
the 12 months following thatfirst cut.
So some things to be optimisticabout if the economy stays
resilient.
And there is a stark differencein results during times where
the economy avoided a recessionthroughout the 12 months

(06:07):
following an interest rate cut,versus those when a recession
did occur.
So that leads me to our thirdkey theme on the minds of
investors today, which is, ofcourse, the presidential
election.
Many people have predictions onwhat could happen in the
election and, of course, in theeconomy and the stock market,

(06:29):
but the one thing to note isthat there is very little
correlation between what happensin the presidential election
and what happens in the stockmarket specifically over the
long term.
Now we know the one thing thatcauses volatility more than
anything else is uncertainty,and going into an election year,

(06:52):
there is an incredible amountof uncertainty.
What you can see in this chartthat was put together by the
capital group is that, leadingup to the primaries, there is
typically a lot of uncertaintyin the markets, which creates
volatility, but what you can seeon this chart is, once a lot of

(07:15):
that uncertainty starts todissipate, we've got some more
firm information after theprimaries and, of course, we
lead into the actual election inNovember, that volatility
starts to dissipate and, in fact, it traditionally has termed
positive for overall markets.
And what you can see over onthe right side of this chart is

(07:37):
that market returns aren't trulycorrelated to the party in
office.
For example, if we look at a10-year average of stock market
returns, they are about equalwhether a Republican was in
office or a Democrat was inoffice.
You can see the data here theaverage 10-year return of the

(08:00):
stock market when Republicanswere in office was just over
10.5% and the average returnwhen Democrats were in office
was just over 11%.
So, again, no directcorrelation to the party in
office and the overallperformance of the stock market.

(08:23):
While there is some uncertaintyleading into this election year,
we believe the best course ofaction is to invest in being
prepared, not investing inpredictions.
Again, what we saw was 2023 wasquite a humbling year for

(08:43):
economists, for forecasters, forpeople who are trying to make
predictions in the market andfor those that stayed the course
in their disciplined investmentapproach and followed their
plan.
They were rewarded, and we seethat same theme playing out here
in 2024.

(09:03):
Now, that's not to say thatthere aren't events that could
rattle the markets.
Of course, some acute change insome of the geopolitical
tensions that are out therecould certainly rattle the
markets, but again, we believethat, with all of the data
that's available today, that thebest course of action is

(09:26):
continuing to stay the course,stay disciplined and not letting
these short-term events driveuncertainty in your own
financial plan.
So again, we appreciate youjoining us for our Q1 2024
market intel report.
And if there's anything we cando, please don't hesitate to

(09:48):
reach out.

Speaker 2 (09:49):
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