Soft landing or impending recession? Much of the talk throughout the third quarter surrounding the economy, interest rates, and where equity markets go from here was centered around that very question. While the economic data is still mixed, and the answer may not be known for many months, steps are already being taken to try and navigate a soft landing. At the September meeting of the Federal Reserve (Fed), the Fed lowered its benchmark rate by 0.50%, its first interest-rate cut in more than four years. This is widely expected to be followed by additional rate cuts throughout the remainder of 2024 and continuing into 2025. While the Fed indicated they do not see any signs of a downturn in the economy, the decision was based mainly on weaker conditions in the labor market and further progress toward lower inflation. Reduced rates will provide lower borrowing costs for consumers and businesses, which, in turn, should provide support for the economy and labor markets.
Election talks also heated up during the third quarter. President Joe Biden announced that he would end his re-election campaign, and the Democratic Party turned to Vice President Kamala Harris to campaign against former President Donald Trump. Hugely different policy agendas have added to a highly contentious election. We are just over one month away from election day, and the outcome appears to be up for grabs.
While many questions remain about how the eventual outcome will impact our economy and financial markets, stocks have performed well during Democratic and Republican presidents alike. Our economy, Fed policy, employment conditions, and corporate earnings will eventually drive long-term results. Major changes in policy that might have a significant impact on any of these four will likely only be realized by one party gaining control of the White House and both houses of Congress, outcomes that are still very much uncertain. Investors will watch the results closely in anticipation of what policy changes might be ahead during the next four years. However, no historical evidence supports making large-scale changes to sound long-term investment strategies based on political outcomes.
As I write this, we are just one week out from quarter-end, and the S&P 500 Index is up slightly more than 20% higher year-to-date. The Dow Jones Industrial Average and technology heavy NASDAQ Composite Index are up nearly 12% and 22%, respectively. Volatility increased during the third quarter as compared to the first half of 2024, and it would not be surprising to see this volatility continue throughout the remainder of the year. Many balls are in the air, and, depending on where each one lands, the short-term direction of the markets will likely be decided—but not the long-term.
It is important to keep in mind that presidential elections happen every four years, market corrections (a decline of 10% or more) happen every 12 to 15 months, and there have been 15 bear markets (a decline of 20% or more) since 1945, all for varying reasons. The key to a successful investment strategy is long-term planning and staying the course. Sir John Templeton once said, “The four most dangerous words in investing are: ‘It’s different this time.’”
As always, we value your relationship and your confidence in Adirondack Wealth Management by choosing us as your financial partner.