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What’s in your head, financially speaking, as 2024 plays out? The Dow breaking through 40,000 or backtracking? The election’s impact on the markets? Inflation and interest rates? Artificial intelligence and the juggernaut that is Nvidia (NVDA)? Retirement? All of the above? You are not alone as you ponder your financial well-being for the balance of the year. Before you lose any more sleep, know that many more events will happen this year, and that there’s a way to look at them all with peace of mind.
In this article, I draw from the expertise of financial advisors as well as the Fed and other institutions to try and suss out how the market for the balance of the year may fare, how to think about your investments and whether U.S. presidential elections and events worldwide may impact where you put your money. I’ll also talk about inflation, interest rates, AI (artificial intelligence) companies, other sectors and much more.
The Stock Market In 2024 So Far
The S&P 500 is up 15% year to date. The Dow Jones Industrial Average is close to breaking 40,000 as of June 21, when it closed at 39,494.67. The Nasdaq is up nearly 19% so far this year. The artificial intelligence sector remains strong and AI company Nvidia surpassed Microsoft (MSFT) as the world’s largest public company one day in June, then slipped to number 3 after Apple (APPL). Those developments are all promising.
“I feel like market sentiment is pretty good right now,” Robin Giles, CFP, founder of Apex Wealth Management in Katy, Texas, told me. ”The recession that was talked about as inevitable the past couple years never materialized. Prices are high, but the stock market is also reaching new highs.”
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Inflation And Interest Rates In 2024
The U.S. inflation rate came in at 3.27% as of the end of May 2024, still too high for the Fed to effect a decrease in the interest rate, noted the central bank. The prime interest rate is 8.5%, according to the Wall Street Journal’s Money Rates Table. “The federal funds rate is currently 5.25% to 5.50%. With that in mind, you can see how the “fed funds plus 3” rule of thumb works: 3 + 5.50 = 8.50,” wrote David Rodeck in “What Is The Prime Rate Today?” on Forbes.com.
Fed chair Jerome Powell said the central bank will cut the interest rate when inflation drops to 2%, which could be this year or next.
“We just saw rates get cut in Canada and Europe this week,” Giles told me on June 12. “I believe we should be getting closer to rate cuts here in the U.S., too,” she added.
She said that the stock market has already “priced in” rate cuts, so that when they do happen, the effect could be minimal in some respects, but it may eventually lead to general GDP improvement by encouraging more borrowers to come back who have avoided high interest rates.
Jason Ware, chief investment officer of Albion Financial Group, in Salt Lake City, believes that a rate cut will bring more investment into the stock market. “With more than $6 trillion in money market funds, one has to think that when rates eventually come down (Fed cuts) that some of the money will find its way to stocks in search of better returns,” he said.
Nvidia, AI And Other Sectors To Watch
Technology is the number 1 sector among the top five to watch this year, noted Forbes contributor Jason Kirsch, CFP, in Portland, Oregon.
“AI is considered by many, including myself, to be revolutionary, and it will drive the next wave of growth and innovation in the sector,” he wrote. “Despite potential market volatility and regulatory challenges, the technology industry remains a hub of innovation, offering significant opportunities for investors.”
Kirsch cited the other four sectors:
- Healthcare, which includes pharmaceutical companies, healthcare providers, medical device manufacturers and biotechnology firms.
- Industrials. This sector includes producing and distributing goods used in construction, manufacturing and infrastructure development as well as machinery, transportation equipment, aerospace, defense and building products.
- Agriculture. Among its main goals are crop production, livestock management and the supply of raw materials for food and various products.
- Mining. Its extraction of valuable minerals and other geological materials from the Earth is essential to producing raw materials for various industries, including construction, manufacturing and technology.
Cost Of Living Increases
The rising cost of living has been stressing out families and bursting their budgets. The May 2024 Consumer Price Index for All Urban Consumers (CPI-U) reported a 3.3% jump for the 12 months ending May, a smaller increase than the 4% for the 12 months ending April. Within those numbers, the food index increased 2.1% over the last year.
A breakdown of the May 2024 numbers included the following, according to a press release published by the Bureau of Labor Statistics that oversees the CPI-U: “More than offsetting a decline in gasoline, the index for shelter rose in May, up 0.4% for the fourth consecutive month. The index for food increased 0.1% in May. The food away from home index rose 0.4% over the month, while the food at home index was unchanged. The energy index fell 2% over the month, led by a 3.6% decrease in the gasoline index.”
Said Giles, “Higher prices have affected everyone, and. I do not see things changing a lot in the next six months.” Although she had noticed recent headlines about food vendors Target and Aldi lowering prices, those are a “drop in the bucket.”
Tax Laws And Changes
“Many, but not all, tax provisions have inflation adjustments,” CPA Larry Pon, of Pon & Associates in Redwood City, California, told me.Those adjustments are important for 2025 tax planning. He added that Congress has given the IRS domain over a wide range of rules impacting taxpayers, such as adjusting tax brackets, standard deductions, gift and estate exemptions and IRA contribution limits, retirement plan contribution limits.
He recommended that investors and their advisors monitor the stock market carefully for opportunities to save on taxes using such methods as tax-loss harvesting and making Roth conversions when certain securities are down. If you do that, he added, “when the stocks come back up, you just made money on a tax-free basis.”
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U.S. Political And Other Geopolitical Factors
The results of the U.S. presidential election could alter the stock market minimally and in the short term, but they usually aren’t a game-changer. In the U.S. Bank’s “How presidential elections affect the stock market,” it reported that the data shows “that market returns are typically more dependent on economic and inflation trends rather than election results.”
“Clients are often nervous in election years, and many have their own preconceived notions that one party or candidate or the other will be bad for the stock market,” Brandon Gibson, CFP, at Gibson Wealth Management in Dallas, told me. “While volatility is not unusual in election years, the reality is that there isn’t much difference between parties when it comes to historical stock market returns and who holds the highest office in the land.”
He added what’s more likely is that a client may get “spooked by hyperbole they read in print or see on TV or the internet, will pull out of their investments altogether,” which is an unsound strategy for long-term growth.
Like the presidential election, geopolitical developments have typically had scant impact on the global stock markets. They could shake up local stock markets, according to the study from J.P. Morgan Private Bank, “How do geopolitical shocks impact markets?,” which reviewed key events, such as wars, terrorist attacks, Brexit and JFK’s assassination, between 1940 and 2022. The exception was the 1973 “oil shock.”
“That is mainly because oil remained in short supply for an extended period, resulting in a macro state of ‘stagflation,’(high inflation amid deteriorating productivity growth). In other words, high oil prices essentially stopped the economy from operating efficiently in the 1970s,” read the bank’s report.
Market Sentiment And Investor Behavior
“Despite a good economy and strong market, general sentiment is strangely not good. It’s sort of this ‘soft-data versus hard-data’ discrepancy that we’ve all been scratching our heads over for some time,” Albion’s Ware told me. Ware believes that it’s partly due to politics and that the “bad inflation period is fresh” in the minds of Americans. Nonetheless, the market has held firm as investors are holding onto their stocks and continuing to invest, he added.
Is A Stock Market Crash Likely, And What Are Other Predictions?
It’s unlikely that there will be a stock market crash in this calendar year, say financial professionals. Do expect pullbacks and corrections. Some of those may depend on election anxiety, a mild recession, lackluster jobs data, a “hawkish-sounding” Fed,” said Ware. But with any of those that cause a market dip could be solid buying opportunities, “So investors should expect one and be ready to buy them,” he added.
Apex’s Giles believes that once the United States gets through the election and investors know what the next four years will look like politically, any volatility in the market will die down and it will stabilize. ”If we keep negative surprises to a minimum, I see the markets and investor behavior staying strong throughout the rest of the year,” she added.
Bottom Line
What’s in the future marketwise for investors? Nobody knows, that’s for certain. Yet most financial advisors who spoke with me believe that solid investment opportunities will continue to reveal themselves if you pay attention to the market, its minimal volatility periods, pullbacks and dips, and a drop in inflation, followed by, perhaps, a decrease in interest rates, in spite of a contentious presidential election and higher costs on everyday goods. So buckle in tight, take note of the ups and downs and, when it’s time, use them to your advantage.
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The brain trust at Forbes has run the numbers, conducted the research, and done the analysis to come up with some of the best places for you to make money in 2024. Download Forbes’ most popular report, 12 Stocks To Buy Now.
