With mixed economic signals and an election season in full force, October was an ideal time to connect and make sense of the financial landscape as we approach the end of 2024.
At our Fall Market Outlook, we invited the CWM community to review the state of the markets, potential changes in tax policy and interest rates, and how to frame the election from a financial standpoint. Morgan Arford and Brian Lockett, CFP® also reviewed CWM’s strategic and data-driven approach to asset management, what changes may mean for our clients’ investments, and the different investment strategies tailored to our client’s’ particular life stage and risk tolerance.
CWM also welcomed Meghan Colarusso, CFA®, Director, Deputy Head of Product Strategy, Multi-Asset Strategies & Solutions at BlackRock to share BlackRock’s perspectives on the markets, potential interest rate hikes, tax policy in 2025 and beyond, and what the presidential election means for the markets. (Spoiler alert: BlackRock’s perspective mirrors CWM’s own, in that time and strategy are the best indicators of successful investing – not the president’s political party.)
Forecast: Tropical Storm
October 2024 presented a mixed economy, with bright spots shadowed by widely spread weaknesses. This often indicates a good environment for an active managed strategy.
Valuations are sky high, driven by fewer and fewer companies. The top 10 companies on the S&P 500 make up 36% of valuation, most of which are fueled by the AI boom.
These high valuations have led to a buying trend: As prices go up, recency bias kicks in and influences behavior, with investors buying more and more assuming prices will continue to rise. These outlier high valuations combined with rate cuts at the federal level suggest long-term weakness in market pricing.
On the other hand, manufacturing data has stagnated in contractionary territory and services data shows a strong downward trend. Unemployment data exhibited notable signs of weakness, while other key economic indicators are neutral or low-neutral (see below charts).
Keeping the Election in Perspective
Even before Election Day, we knew that tax policy was one of many unknowns for the next administration. The $3 trillion in tax cuts from the 2017 Tax Cuts and Jobs Act are scheduled to sunset at the end of 2025, which is tantamount to a tax hike. And more tax increases may be needed to cover drastically increased federal spending and borrowing: The year 2015 saw $3.8 trillion in federal spending and $469 billion in federal borrowing. In 2024, those numbers jumped to $6.8 trillion in spending and $1,915 billion in borrowing. Amazingly, interest paid on the federal debt surpasses even military spending.
However, data shows that the party in control of the executive branch has little effect on market returns in the long run. It’s time in the market, not the political party in power, that directly affects returns and results.
Read more post-election analysis here.
Guest Perspective: Meghan Colarusso, CFA, Director, Deputy Head of Product Strategy, Multi-Asset Strategies & Solutions at BlackRock
Meghan drove home three main points in her analysis:
1. The economy appears resilient
2. Volatility and dispersion may persist
3. Diversification remains critical
The US GDP has moderated from last year’s elevated levels but is projected to remain resilient. Analysts at BlackRock see a low likelihood of recession, and consensus odds have come down as well.
What’s more, alternative data supports steady or improving industrial activity. Data on materials production, rail traffic, and truck demand indicate steady or improving industrial activity, reinforcing the idea that hard data provides a clearer picture during periods of concentrated growth.
BlackRock GTAA has found that in times when growth is unevenly distributed across sectors, hard data measuring actual output is more accurate than sentiment-based surveys, which may not fully capture the nuances of the economic landscape (see below chart).
Inflation has declined from 2022 highs, but core services prices remain sticky
Inflation is above target across countries. The US, UK, and Eurozone remain above the 2% Central Bank target. However, uncertainty around monetary policy is high. Quantitative tightening has had a limited impact, and US fiscal policy remains loose.
Sitting on the sidelines can be costly
Cash yields have been high, but they still haven’t kept up with the diversified portfolio. Over time, that difference in returns compounds. There is a low probability that cash will outperform stocks in the long term. And the amount of underperformance is truly breathtaking when viewed over longer periods.
To watch the webinar that discusses these concepts in fuller detail, please click here.
For personalized analysis, get in touch
If you are interested in a deeper dive into the current market data or a more tailored conversation regarding CWM's investment models, please Contact Us or call the office at (425) 778-6160 to schedule an appointment with your CWM advisor.
