Quarterly Coordinates Q4 2024: The Great American Road Trip

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

With fall in the air, it's a great time for a road trip! With the economy, election, and markets at a crossroads, we want to share the path each will likely take moving forward. Will it be a long straight highway to a soft landing, or will it be a bumpy road to a recession? Will November's election results provide a fork in the road on taxes and tariffs? And what road signs should we follow in positioning portfolios?

On our latest Quarterly Coordinates webinar, Chief Investment Officer Larry Adam maps out our outlook for the rest of this year and beyond using unique destinations across America—from our headquarters in St. Petersburg to the Space Needle in Seattle, with multiple stops along the way.

1. Introduction │ The Great American Road Trip

INSIGHT: "It's not the journey, it's the destination." The American Road Trip is a staple in American culture, and it has seen a resurgence in recent years. Similar to financial markets, there are oftentimes detours and forks in the road during a road trip. Stay the course!

BOTTOM LINE: There are several forks in the road for markets over the coming months: will the economy enter a soft landing or a recession? Will Republicans or Democrats win? The journey makes the destination sweeter.

2. Economy │ The US Economy Continues to Shine Bright

INSIGHT: Following a traditional road map would suggest that the US economy should have entered a recession already. However, due to the resilience of consumer and business spending, a soft landing is our base case for the economy.

BOTTOM LINE: While potential 'falling rocks' (e.g., higher rates, a continued slowdown) remain for the US economy, strength in the consumer, continued government spending and business capex lead the US economy on the path of expansion.

3. Monetary Policy │ Next Stop: Washington DC and the Federal Reserve

INSIGHT: The Federal Reserve (Fed) has officially embarked on the path of cutting interest rates. With a continued slowdown in inflation and an easing labor market, we expect rate cuts to continue moving forward.

BOTTOM LINE: As we expect the Fed to continue on the path of cutting rates, a soft landing remains our base case. Rate cuts will be supportive of consumer spending (particularly interest rate-sensitive areas) and help prop up hiring in the labor market.

4. Politics │ A Trip Through the Blue Wall

INSIGHT: When looking at polling, betting markets, capital market indicators or enthusiasm metrics, the election appears to be a toss-up. The election will likely come down to one of the blue wall states – Pennsylvania.

BOTTOM LINE: While the presidential election remains a toss-up, gridlock in Congress is our base case. Regardless of the eventual election outcome, not making knee-jerk portfolio decisions is critical, as staying invested regardless of who wins has been fruitful for investors.

5. Fixed Income │ Heading Through the Breadbasket of America

INSIGHT: Just as the agricultural production of these states helps sustain our economy, fixed income is a staple part of a portfolio. Like a steady supply of foodstuffs, bonds (particularly high-quality bonds) provide stability and consistent income.

BOTTOM LINE: We forecast bond yields will likely stay relatively stable over the next 12 months, with the 10-year Treasury yield staying in a tight range around 4%. As the Fed continues to cut interest rates, investors should slowly transition their cash holdings to longer-duration bonds.

6. Energy │ Entering the Energy Capital of the World

INSIGHT: Texas and Lea County in New Mexico are arguably the energy capitals of the world and have helped propel the US to be the largest energy producer in the world. Rising US production and slowing demand in China have weighed on prices.

BOTTOM LINE: Despite rising geopolitical risk overseas, we expect only limited upside for crude oil prices over the next 12 months as record US production and sluggish global demand should help keep prices contained around $75/bbl.

7. Equities │ Favorable Set up for Equities

INSIGHT: Like the weather conditions in Southern California, conditions are set up for the bull market to continue over the next 12 months. However, akin to slower travel speeds in the region, the bull market is likely to move at a slower pace in the near term.

BOTTOM LINE: Still positive economic growth, rising earnings, and a record amount of cash on the sidelines remain supportive of the equity market moving forward. We remain optimistic about the Tech, Industrials, and Health Care sectors and small-cap stocks.

8. Asset Allocation │ Building a Portfolio Set to Last

INSIGHT: Having a broad perspective is needed when managing a portfolio. Similar to road trips, markets often experience detours and do not move in a straight line. Building a portfolio that can withstand these incidents is critical.

BOTTOM LINE: Take the long view when it comes to investment decisions; don't be distracted by the day-to-day headline noise. Staying the course will help you reach your destination!