Broker Check

The down and dirty of the markets for now

May 28, 2024

Summer is upon us now, and if you’re like me, that means more social gatherings and conversations with neighbors, people on trips, etc. I like to think that when someone asks me about the markets, I can answer in a way that they feel comfortable with the answer.

Here is an example:
First, the economy and the market are “fine” for now, regardless of scary headlines. There have been four drivers of the market since October: Solid growth, falling inflation, expectations for Fed rate cuts and tech stock strength. All of those are still comfortably in place. So, until that changes, it’s not reasonable to worry about a major decline in the markets.

Second, there will be some short-term volatility. Markets can’t go up every single day, and we should expect some volatility in the short term. The number one cause of short-term market volatility is investors’ expectations for when the Fed will cut rates. In April, stocks dropped because markets thought the Fed might not cut rates at all in 2024. Since then, markets have rebounded, and now markets think the Fed could cut rates twice in 2024 (with the first cut in September). Those shifting expectations will create short-term volatility, but we’re not short-term focused, and whether the Fed cuts rates in September or December doesn’t really matter as long as the market knows the next move will be a cut. So, if the market drops in the next few weeks on rate cut worries, that’s likely an opportunity to add exposure because it’s not a major, long-term negative.

Speaking of the long-term, the number one worry is economic growth. It’s good right now, but we must stay vigilant to any signs it’s really falling off because that’s the type of event that could end this bull market. We don’t need to worry that much about rates. If rates stay high and economic growth is solid, markets can continue to do well in that environment (remember the whole October-to-present rally has occurred with rates near 5.5%). Bottom line, an economic slowdown is what we have to watch for and that’s exactly what we’re doing.

Practically, that means stay invested and stick to the plan. Short-term volatility is going to come, but unless something major changes, it’ll present opportunities. Because slowing growth is the risk and given the markets had a big run, lowering volatility in our holdings makes some sense and that’s what’s been outperforming lately and we think it’ll continue to do so over the summer.

In terms of elections and politics, the debate at the end of June will create headlines. But markets shouldn’t really begin to focus on the election (and potential impacts) until after Labor Day (and there are a lot of unknowns that’ll be resolved between now and then, including Trump’s court cases and whether he’s immune from any January 6th charges).

The bottom line is that the medium—and long-term outlook remains generally positive. Don’t get too worried over scary headlines about rates and rate cuts. Rates aren’t going to end this bull market, but a slowing economy would, so that’s the major risk we’re monitoring right now.

That is the down-and-dirty of the markets for now. As we look at every economic number and company fundamentals, we stay fully invested with strength in the choices. Enjoy the summer months as the markets are on track to be up strongly for the year. Try to avoid all the political discussions as that is a formula for depression and anger. Enjoy all of your family for that is God’s gift to you. And most importantly, look up every day…God is watching over you.

"This material is provided for general information and is subject to change without notice.  Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. The information does not represent, warrant or imply that services, strategies or methods of analysis offered can or will predict future results, identify market tops or bottoms or insulate investors from losses. Past performance is not a guarantee of future results.  Investors should always consult their financial advisor before acting on any information contained in this newsletter.  The information provided is for illustrative purposes only.  The opinions expressed are those of the author(s) and not necessarily those of Geneos Wealth Management, Inc."