Cary Greenspan is the Chief Investment Officer at United Wealth Management. As an investment professional with more than 35 years of experience, Cary establishes and guides the overall investment philosophy, strategy, vision, culture, and risk appetite within United’s Wealth Management division. The Thrive team spoke with Cary about the upcoming 2024 presidential election and its potential impact on the investment market.
What are market projections for the remainder of 2024?
Firstly, Federal Reserve monetary policy remains restrictive, but the Fed has indicated it will be more accommodating during the rest of 2024. Thus, interest rates should decrease as inflation continues its downward path. What is unknown, even to the Fed, is the timing and magnitude of these declines. Moreover, reductions are not likely to be linear.
Secondly, U.S. economic output remains healthy as employment conditions continue to defy naysayers. Those employed enjoy reasonably strong wage gains as over 8 million jobs remain available. With unemployment at only 4%, consumers continue to spend at a reasonably healthy pace, acting as a tailwind to domestic economic expansion.
Finally, estimated 2024 corporate earnings are forecast to increase nearly 10% year-over-year. This would be the largest annual increase in three years.
The stock market has performed spectacularly since last October after the Fed laid out its plan to reduce rates well into 2025. In response, investors have continued their euphoric stance over the short term. While domestic equity markets are showing signs of being somewhat overbought, the generally positive sentiment is still justified over the long term. We currently see no evidence of major downside potential. However, we are prudently reducing risk where appropriate, given the recent price expansion.
How have previous presidential elections impacted the market?
History demonstrates markets may react to election results for a very short period of time, reverting back to its primary trend almost immediately thereafter. After examining equity market performance from mid-May to election day over the past six presidential elections dating back to 2000, the S&P 500 rose five out of six times with an average gain of over 7%. The notable exception was in 2008 when the market was already in the midst of the Global Financial Crisis. Furthermore, four out of six of those years ended positive by year-end, with the only additional exception being the year 2000 when investors were beginning to feel the fuller effects of the dot-com bubble.
When one examines the next full calendar year after an election, five of the six years turned in a positive performance, averaging a 22% gain. The only negative year was 2001 when the high-tech industry was still suffering from excessive valuations and little earnings growth.
What reactions and concerns do investors have during election years? Are these reactions and concerns warranted?
It is our contention that institutional analysts and investors tend to evaluate the true data-propelling economic function, which simply cannot be altered in the few months immediately preceding or following an election, no matter its importance and potential impact. Campaign promises and actions supporting political changes take time to implement. The factors and variables that lead to change are often elusive and not as predictable as one may think.
We have no reason to believe recent market history will not repeat itself again during this campaign cycle and the general economic conditions will once again prevail as the major factor being considered by investors come election time. We remain focused on quality employment figures and continued progress bringing inflation to even lower levels.
What action, if any, do you encourage investors to take in the months leading up to and after the election?
Though each and every presidential election may have economic implications, we do not advocate changing your investment philosophy or ultimate goals simply based on a single election. However, we do recommend regularly evaluating your risk tolerance and asset allocation to determine if your net portfolio can withstand occasional short-term volatility. Typically, investors are less concerned with day-to-day fluctuations. But market activity can also be impacted by traders who thrive on uncertainty. Elections often bring a degree of the unknown, so it is wise to prepare oneself emotionally even if there are limited long-term economic impacts that result.
What resulting opportunities do you expect to see in 2025?
Given the rather positive economic conditions we see now, and for the remainder of 2024, we do not see any severe changes to this trend and expect this momentum to continue well into 2025. This means inflation figures should remain low and perhaps near the Fed target of 2%. This means bond investors should enjoy quality total returns. If you are holding assets in a short-term money market, savings accounts or in certificate of deposits, chances are those rates of return will eventually begin to fall, and your returns will be lower. With earnings growth potentially well over 10% next year, the stock market should continue to do quite well.
Any final thoughts or advice?
Though election years may be unnerving and political discourse may prove to be unsettling to many, financial markets tend to move in concert with general economic conditions and are somewhat apolitical. An investor's best weapon against the unknown, any unknown, is to have a well-conceived financial plan that can withstand the impact of occasional but inevitable volatility — a plan that is protective enough to reduce the risk of asset value loss while still capable of generating growth. Perhaps most important is the discipline to follow one’s well-established plan once it is put in place.