BY STRATEGIC ADVISERS INVESTMENT TEAM — NOVEMBER, 2024
Market Conditions
We believe the U.S. economy continues to expand. Volatility during this phase of the business cycle is normal. However, historically, stocks and bonds have risen as the U.S. economy expands, even through bouts of volatility.
- Now that the U.S. presidential election is behind us, it’s a good time to remember that while policies may matter, history shows that markets are generally nonpartisan. They’ve historically performed well under different political administrations and investors are unlikely to benefit from moving out of the stock market based on election results or policy changes.1
- Unemployment stayed at 4.1% in October, unchanged from September, remaining near historic lows.2 The job market remains a source of strength for consumers and the economy.
- During Q3 2024, U.S. corporate profits grew about 7%3 and the outlook for corporate profit growth continues to remain healthy for 2024.4
- Consumer spending remains strong and service industries are doing well, which are positives for the economy.5
- Inflation is now slightly higher than 3%, close to the 100-year average of the U.S. consumer price index.6
- The US Federal Reserve (Fed) held their meeting on November 7th and cut interest rates by 0.25 of a percentage point.7 This decision aims to reduce inflation while supporting job growth.
What it may mean for your portfolio
Some investors may be tempted to look towards recent elections for clues on where markets may go from here. However, historically, economic growth and the outlook for corporate profits have been much stronger drivers of stock market performance.
On that front, we believe the U.S. economy continues to experience a prolonged expansion. Unemployment remains low, as do layoffs (as measured by initial jobless claims). Wages continue to rise and consumers continue to spend. These are all positive signs for the U.S. economy, which is primarily driven by consumer spending.
As for corporate profits, third quarter earnings showed continued growth. The outlook for corporate profit growth for the fourth quarter and 2025 also remain positive. Rising earnings may lead to higher stock prices over time.
With the recent U.S. elections, a few areas of policy in the coming years may impact investors. It’s important to remember that these changes may take months or years to pass. Moreover, the details of each policy measure will shape the potential impact for investors.
For example, measured tax cuts may lead to higher corporate profit growth. Yet the size of these potential tax cuts is likely to be much more modest than they were in 2018. This means that the lift to profits is likely to be smaller. Alternatively, large tax cuts may put further strains on the U.S. national debt.
Another area that may be important is global trade. A narrow use of tariffs may improve some key trade relationships for U.S. businesses. On the flip side, broad tariffs run the risk of leading to higher prices for consumers.
Additionally, thoughtful immigration reform may lead to a healthier growth outlook for the U.S. economy. However, larger measures may disrupt certain segments of the economy, such as agriculture and home building, and may also lead to rising prices.
Having said all that, it is far too soon to know the specifics on any of these policy areas. So, while elections are important and a vital part of our country’s democracy, the potential impact on markets is far from certain at this point. This is why we will continue to manage client accounts based on rigorous research on the U.S. business cycle and market fundamentals.
Outlook
We will continue to closely research and analyze the current position of the U.S. economy within the business cycle. As the need arises, we will seek to reduce the level of risk within client accounts. Just as importantly, we will seek out potential long-term growth opportunities when the U.S. economy is expanding. We believe these actions have the potential to deliver strong risk-adjusted returns for our clients.
Make a plan, stick with it, and stay invested
Market conditions can change quickly. Historically, the market has sometimes rallied, even as news headlines may have felt discouraging. We aim to guide clients through market fluctuations, such as the recent rally. As a result, we have maintained healthy exposure to stocks, even through bouts of market volatility. We believe that staying invested during all types of market conditions can ultimately help you reach your financial goals over the long term.
