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.

Episode Transcript

Speaker 0 (00:06):
Hello everyone.
This is Dave Allison.
I hope you're having awonderful summer.
In this video we're going to begoing through our third quarter
2024 market intel report.
But before we dive into some ofthe key themes that I know are
on the minds of investors today,I want to just start off by

(00:27):
recapping where we've been sofar this year.
It's been a volatile year, alot of uncertainty.
We know we're in a presidentialelection year, but so far the
stock market has rewarded thosewho have stayed the course and
remained invested.
If we look at the global equitymarkets, they've returned about

(00:48):
10% for the first half of thisyear and if we look at global
bond markets, they've returnedabout 2% for the first half of
this year.
Now, if we look a little deeperinto equities in the United
States, there's really threemajor indexes that we track.
The S&P 500, which is comprisedof the 500 largest growth

(01:11):
stocks in the United States,returned about 15% in the first
half of the year.
The NASDAQ, which is really atechnology concentrated index,
technology concentrated indexreturned over 18% in the first
half of the year.
And last but not least, the DowJones Industrial Index returned

(01:32):
about 4.8% for the first halfof the year.
So, of course, the majordifferences between these
indexes are what stocks thatthey hold and the concentration
of those stocks.
For example, in the NASDAQ,it's mostly technology-oriented
stocks.
It's got larger concentrationsin some of the big tech-heavy

(01:54):
stocks that have had tremendousincreases in value this year,
like Nvidia, meta, google, apple, whereas, of course, the Dow
Jones Industrial Index might nothold those stocks or might just
hold a lower allocation ofthose stocks.
And so, all in all, the firsthalf of the year has turned out

(02:14):
to be a really good start forstock market investors.
Now, for most of our clients,they're in a diversified
portfolio.
There's investments thatrepresent everything indexes
like the S&P 500, the NASDAQ orthe Dow Jones.
There's also bonds.
For example, a more moderateallocation would be 60% equity,

(02:37):
40% bonds and, again through thefirst half of the year, a
portfolio structured like thatwould have seen a return of
about 6.5%.
Now, as we know, there are somekey headwinds as we go into the
second half of the year here, alot of uncertainty, and that's
what we're going to talk aboutin this video Some of the key

(02:59):
themes that are on the minds ofinvestors today, and the first
one is, of course, investmentconsiderations in an election
year.
By design, elections have clearwinners and losers, but the real
winners are the investors whoavoided the temptation to wait
out the election year jitter andinstead they stay the course

(03:23):
and remain invested for the longhaul.
What we've seen is that marketshave historically performed
quite well during an electionyear.
If we go all the way back to1928 and we look at the S&P 500
index again the 500 largestcompanies in the United States

(03:44):
in an election year they'veaveraged about 11.5% return.
Now, if we contrast that to anon-election year, it's been
about a 12% return.
So there isn't much statisticaldifference in the stock market
return in an election yearversus a non-election year.

(04:06):
Now, I know this year seems tobe more divisive than ever in
terms of the election and what'sat stake, but the reality of it
is people care about politics,but the market does not.
Stocks tend to do well inelection years.

(04:31):
The stock market has beenpositive in 20 of the 24 last
election years.
If we look at the four electionyears where the stock market
was negative, three of thosefour years it's been periods of
economic crisis.
The three years are 1932, 2000,and 2008.

(04:56):
And so, again, what we need tokeep consideration of is that we
know there's going to be a lotof noise politically out there,
but that noise isn't the primarydriver of stock market returns,
and whoever is in office is notthe primary driver of stock

(05:17):
market returns.
Yeah, it could have some impact, but there's many other things,
like the innovation of thesecompanies and what's going on
from a macro level, that reallyend up driving the company
earnings and power their stockprices.
Now, in the near term, politicalagendas could help boost

(05:38):
individual sectors, especiallyin the case where one party
controls the White House andCongress.
For example, as you can see onthe screen, maybe a party gets
in office and controls the WhiteHouse and Congress that's in
favor of defense spending.
That could certainly boost theaerospace or defense sector.

(06:01):
Or maybe a party is in controlof the White House and Congress
that favors the continuedefforts of the Inflation
Reduction Act that PresidentBiden passed.
That could favor sectors likerenewable energy or tech
manufacturing.
Tempting to position portfoliosaround political outlook for

(06:33):
certain sectors isn't likely tobe a winning strategy, as party
goals are not the only factorsinfluencing company results.
Investors are better servedtuning out the election noise
and focusing on the long-termfundamental drivers of the stock
market.
The next thing that I want totalk about is monetary policy

(06:55):
and whether the economy isdriving monetary policy or if
elections are driving monetarypolicy.
We all know that we're in aheightened interest rate
environment and that the FederalReserve has been tasked with
doing whatever they can tobalance jobs, the economy and

(07:16):
reducing inflation, and we alsoknow that the stock market has
expected some interest rate cuts.
Now what we've seen from amacro trend position is that
inflation has been morepersistent, it's been harder to
bring down and that's caused theFed to keep interest rates
higher for a longer period oftime, going into this year.

(07:40):
We talked about in some of ourmarket intel reports that the
market was predicting three,four, maybe even five rate cuts
in 2024.
Here we are, in July as I'mrecording this, and now we're
talking about one, maybe tworate cuts, and obviously that
has an impact on the stockmarket and the valuations of

(08:01):
companies.
Now what's important to note isthat the US Federal Reserve has
not hesitated to enact changesin monetary policy during an
election year, and 2024 islikely to be no different,
should the economic picturewarrant it.
Only one time since 1980 hasthe central bank not adjusted

(08:26):
interest rates during apresidential election year, and
that was back in 2012, whenrates were near zero and the US
was still recovering from theglobal financial crisis.
In each instance, whether rateswere hiked or cut, the economy,
and not political motives, werethe primary driver behind the

(08:51):
action.
Lastly, I want to talk aboutsome of the trends that we're
looking at Now.
There's no shortage of trendsthat are out there that you have
the opportunity to follow, butthe three big ones that we're
constantly looking at and I'vementioned this in other videos
are number one, the economy,measured by GDP, gross domestic
product, our overall growth.

(09:13):
Number two, the consumersentiment.
And then number three, thelabor market.
Right and so tracking thetrends using a handful of key
indicators can help investorsjust keep a pulse on the health
of the overall economy andtherefore the likelihood of
shifts in monetary policyThroughout much of 2024,.

(09:34):
Broad economic resiliencycombined with sticky inflation
has tempered the expectationsfor the timing and the magnitude
of rate cuts.
Interest rate cuts In the FOMC'ssummary of economic projections
following June's meeting, thedot plot indicated that one

(09:57):
interest rate cut is expected in2024, down from three following
their meeting back in March.
More recent trends show agrowing yet slowing economy and
while economic data, andtherefore expectations for
interest rates, can shiftquickly, financial markets

(10:18):
should benefit over time from avery resilient and dynamic US
economy.
Now, this doesn't mean we won'tsee short-term volatility in
the United States market.
But again, all signs arecontinuing to point to a
reduction in overall inflationand hopefully that should give

(10:39):
the Federal Reserve theconfidence that they need to
start lowering interest ratesAgain.
Lowering interest rates couldbe good for overall stock
valuations and a good driver forlong-term growth of the market.
So I hope you found this quickmarket intel report to be
valuable.
Again, the common trend is thatthere's going to be a lot of

(11:02):
noise, there's going to be a lotof political uncertainty as we
lead into the November election.
But two things I want you toknow.
Number one, a presidentialelection year does not
necessarily mean a bad year forthe market, no matter what side
of the aisle you're on.
And number two, stay the coursewith your goals and objectives.

(11:26):
If you're uncomfortable withthe amount of risk or volatility
in your portfolio, have aconversation with your advisor.
You could reallocate or changearound strategies based on what
your needs, your goals andobjectives are, because, at the
end of the day, the mostimportant thing is that you're
comfortable with your investmentapproach.

(11:48):
If you have any questions,please don't hesitate to reach
out to our team and I'll see younext quarter.