Forecasting the Markets: A Delicate Dance

Just like trying to predict the weather, forecasting the economy often feels like picking daisies—"Will it be a hard landing, or a soft one?" Over the past two years, we've gone from anticipating a mild recession to no recession, to maybe a recession, and back again. Yet, despite all the uncertainty, we’re pleased to report that equity markets, particularly the S&P 500 (though not the Dow—more on that later), have posted strong double-digit gains both in 2023 and so far in 2024.

Our new research partner, Evercore ISI, recently signaled that a soft landing is the most likely outcome. Here are a few reasons why:

• Low unemployment claims signal ongoing job market strength.
• High liquidity continues to support financial markets.
• Potential Fed rate cuts are on the horizon.
• Corporate profits remain robust.
• AI growth is providing new investment opportunities.
• Slowing inflation, particularly in groceries and gasoline, is easing consumer pressures.

While there’s a presidential election on the horizon with significant potential impacts, we believe market performance is driven more by broader economic factors than by who occupies the Oval Office. Despite concerns over government spending and rising debt, the equity markets continue to climb, while interest rates are falling across the yield curve.

Finding Opportunities in Bonds and Stocks

In our weekly investment committee meetings, we’re looking at which bond maturities provide the most attractive returns and debating whether municipal tax-free bonds or corporate taxable bonds are the better choice. For reference, the 10-year treasury has gone from 4.6% to 3.6% since May.

On the equity side, we’re taking advantage of recent volatility to rebalance portfolios, trimming positions that have become too large and reassessing sector exposures.

Speaking of sector allocation, the upcoming election could have a material impact, with sectors like healthcare, technology, and industrials reacting differently depending on the outcome. Trade tariffs are also likely to remain a key topic for both sides of the political spectrum, and we’re already preparing for those potential impacts.

S&P vs. Dow: Two Different Stories

The disparity between the S&P 500 and the Dow is notable—the S&P has risen almost twice as much as the Dow so far this year. This is largely due to the S&P's heavier weighting in technology stocks, while the Dow leans more towards the "real economy," with fewer businesses operating in the digital or "cloud" space. With the consumer sector slowing and election uncertainties looming, it’s no surprise that the Dow’s performance lags behind.

Staying the Course

When it comes to investing, timing the market has consistently proven to be ineffective. Our strategy remains to invest in great companies for the long term. We continue to seek out businesses with strong cash flows, excellent management, and defensible business models to strengthen our portfolios.

In addition, we’re increasingly finding opportunities in private markets, and we’ll bring those to your attention when the time is right.

Homework

Looking to 2025, there is a cliff at the end of next year we all should pay closer attention to – the 2017 tax cuts are set to expire, and preparation is paramount. Serious conversations between us, your CPAs and your Trust and Estate attorneys to explore potential options and solutions would be worth your time.

No matter what comes, we will help you navigate it, keeping eyes forward and your goals in sight. Thank you for your continuing trust in our guidance.

Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investments mentioned may not be suitable for all investors. Past performance may not be indicative of future results. Raymond James financial advisors do not render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success. Any opinions are those of Peter Bermont & Michael Gold, not necessarily those of Raymond James. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal.