Market Update Summer 2024: Plan to Bring an Umbrella In Case of the Rain

2024 Election and Market Expectations

As the 2024 election approaches, concerns about its impact on the stock market are natural, especially given current economic conditions and the overall political climate. This is because the economy appears to be slowing down, inflation remains above the Fed’s 2% target, and stock prices are high when compared to company earnings.

Market Reaction to Election Outcomes

Historically, election outcomes have had minimal impact on market performance. In election years, markets have generally performed well, with few instances of significant pre-election losses. While there might be more market ups and downs in the coming months, it’s not usually a result of the upcoming election

Daily volatility tends to be slightly higher in election years (20.1% vs. 18.4% for non-election years since 1928).
Presidential election years have shown an average return of 11.0% for the stock market, with 83% of years ending positively, compared to 11.6% and 69% in other years.

Analysis: Manning & Napier. Source: Bloomberg (12/31/1927 – 12/31/2023). US Large Cap Stocks are represented by the S&P 500 Total Return Index.

Government Policy and Market Trends

Different government setups can lead to different policy outcomes. A divided government usually spends less, while a unified government may increase deficits but also boost growth and inflation.

Continued geopolitical tensions, particularly with China, are expected regardless of election outcomes.
Under Republican administrations, broader challenges with international allies may arise, whereas Democratic leadership may foster more cooperative relations.
Attempts to reclassify and replace general government employees could disrupt social services and put the outcomes of the federal government in uncharted territory.

Tax Policy and Long-Term Planning

The Tax Cuts and Jobs Act (TCJA) of 2017 is set to expire by the end of 2025, potentially changing tax brackets and rates unless new laws are passed. I think it’s best to plan for potential tax changes in 2026 while considering various legislative scenarios.

Regardless of election outcomes, long-term tax planning strategies can help lessen the impact of future taxes while helping to achieve financial goals.

Economic Trends and Market Outlook

Recent economic indicators suggest a mixed outlook.

Inflation shows a downward overall trend with brief upticks in various areas of the economy.
Overall economic data points to a slowdown, raising questions about the severity of a decelerating economy (recession versus a softer landing).
Continued inflation complicates Federal Reserve interest rate policy decisions, delaying expectations for cuts to current interest rates.
Stock market prices remain high, despite future economic uncertainties.
Variations in sector performances highlight the differences between different segments of the economy.

In these changing times, it’s important to focus on long-term investments while also protecting short-term financial needs. Having a financial plan will help navigate market ups and downs and seize opportunities.

If you’d like to discuss your personal financial plan further, please feel free to get in touch.

Sources:

The views expressed are as of July 2024 and are based on current economic conditions, which are subject to change. Statements of future expectations and other forward-looking statements that are based on current market and economic conditions and assumptions involve uncertainties that could cause actual results, performance, or events to substantially differ.

The material discussed is meant to provide general information and should not be construed as specific investment advice. Keep in mind that current and historical facts may not be indicative of future results. All investing involves risk, including the potential for loss of principal.