Quarterly Coordinates Q3 2024: City of Lights, Market of Opportunities

To view the full article: Click Here
To watch the replay: Click Here

Featuring: Lawrence V. Adam III, CFA, CIMA®, CFP® - Raymond James Chief Investment Officer

The Olympic Games come to the City of Lights this summer! For the quarterly outlook, Raymond James Chief Investment Officer Larry Adam is inspired by the Paris Summer Olympics—and there’s a twist! Instead of using the most popular events (like gymnastics, swimming, or track & field) to articulate our investment view, we’re looking beyond the spotlight to events like surfing, climbing, and volleyball. The reason: just like the investment markets, we look beyond the obvious and consensus views, and strive to find value in diverse areas of the market—because that is how you can add value to a portfolio over time.

1. Introduction | Unprecedented Olympic Games and Financial Markets

INSIGHT: The 2024 Summer Olympics are set to kick off this summer in Paris, France. There are a number of unprecedented events at this Olympics, such as the Opening Ceremony not taking place in a stadium and the official mascot being a hat for the first time.

BOTTOM LINE: Similar to the Games, there are several ‘unprecedented’ events occurring in financial markets—such as the longest bond bear market on record, a record amount of government debt and the longest yield curve inversion in history. Managing these ‘unprecedented’ events will be critical.

2. Economy | Riding the Wave of the Consumer

INSIGHT: Up until this point, the US economy has ridden the wave of robust consumer spending. However, with a number of headwinds in front of the consumer (e . g . , rising delinquencies, slowing labor market), growth is likely to slow over the coming quarters.

BOTTOM LINE: While growth is poised to slow, the US economy should ‘avoid a wipeout’ as still positive consumer spending, Fed cuts and fiscal spending are all supportive of growth. Rising energy prices are a key risk to the growth outlook.

3. Fixed Income | Bonds ‘Set Up’ for Positive Returns
INSIGHT: Unlike indoor volleyball, participants in beach volleyball have to contend with other factors such as sand, wind, and heat. This is similar to the bond market, as other factors such as issuance, foreign demand and the impact of central bank policy play a key role in bond market returns going forward.

BOTTOM LINE: Elevated carry combined with a decline in yields (due to slowing growth and inflation) should lead to solid fixed income returns over the next 12 months. We favor investment grade, munis and EM bonds.

4. Equities| Scaling the Wall of Worry to Record Highs

INSIGHT: Despite obstacles (e . g . , elevated valuations, higher interest rates), the equity market has continued to climb higher as the S&P 500 is off to the best start to a reelection year on record and has notched 31 record highs year -to -date. However, the climb gets more challenging the higher you go.

BOTTOM LINE: With valuations at elevated levels, much of the good news has been priced into the market. While we remain cautious in the near term, rising earnings and the fact that we are still early in the bull market leave us confident longer term.

5. AI | ‘Breaking’ From the Shadow of the Market

INSIGHT: While breakdancing has been around for years, it has finally gained notoriety in the Olympics for the first time in 2024. This is similar to artificial intelligence, as while it has been around for decades the release of ChatGPT put technological advancement into the forefront.

BOTTOM LINE: As computing power has significantly advanced in recent years, use cases for AI have caught a groove. As AI will continue to drive investment, we continue to like the Tech sector as it has consistently beaten earnings estimates, has the highest margins of any sector, and has the largest amount of cash on balance sheets.

6. International | US Dominance to Continue

INSIGHT: US Women’s Basketball has been a standout on the international stage, winning each of their last 55 games. Similar to this, US equities have also been a standout, outperforming other developed markets by ~340% over the last 16 years.

BOTTOM LINE: We continue to prefer the US over international due to its stronger economic and earnings growth. However, the competitors (e.g., Japan, Europe) are narrowing the gap. Within emerging markets, we like Mexico and India.

7. Politics | Wrestling Until November

INSIGHT: With less than five months to go until the election, the presidential race remains neck and neck. Watch equity performance in the three months leading up to the election, as this has been the strongest predictor of the outcome.

BOTTOM LINE: Staying invested and not making investment decisions based on which party wins has been the most important outcome following an election.

8. Asset Allocation | Synchronized Strategy for Long-Term Investing

INSIGHT: Much like synchronized swimming, much of what occurs in developing an asset allocation framework happens beneath the surface. Maintaining asset allocation principles is critical.

BOTTOM LINE: Sticking to your asset allocation framework is critical to achieving financial goals. Work with your coach (financial advisor) to pursue a gold (financial freedom) medal!