5 Insights for the Second Half of 2024







This is Brad Barrie, Chief Investment Officer and Portfolio Manager with Dynamic Wealth Group.  Welcome to this quarterly market and economic update. As we begin the second half of the year, we’ll talk about five key themes that investors should be aware of.

Through the first two quarters of the year the S&P 500 has gained about 15% as tech stocks and the possibility of Fed rate cuts have propelled the market to new all-time highs. Improving inflation is also slowly beginning to support the bond market and sets up the possibility that the Fed could cut rates one or two times later this year. However, many investors are still nervous about the market outlook and are waiting on the sidelines holding on to cash.

Perhaps the biggest event in the second half of the year will be the upcoming presidential election, especially the impact that it may have on taxes, inflation, regulatory policy, trade, and more. Over the next few minutes, we’ll touch on these themes and discuss their importance for investors to maintain perspective over the next several months.

First, the market has experienced a strong rally this year with the S&P 500 reaching over 30 new all-time highs. Continued optimism over tech and AI-related stocks has helped to drive this rally. This may come as a surprise to some investors since there continues to be significant market and economic uncertainty.

Some investors may worry that the market hitting new highs could be a sign that the market is “due for a pullback.” However, since the market tends to rise over time it naturally hits many new all-time highs. Investors who worry too much about the exact level and exclusively try to time the market may miss out on long-term performance. History has shown us that it’s often better to stay invested and focus on the longer-term trends rather than day-to-day headlines.

Second, the Fed is expected to start cutting policy rates later this year. These expectations have changed significantly with the timing of the first rate cut pushed back after repeatedly higher than expected inflation readings, but the most recent data show that inflation is finally easing. Most recently both the Consumer Price Index and the Fed’s preferred measure of inflation, the PCE price index, showed that prices were flat over the month of May.

This chart shows the current level of the federal funds rate alongside the Fed’s rate projections for the coming years. Their latest projections suggest that there will be one rate cut this year, while markets anticipate between one and two.

While it’s difficult to say, history suggests that a decline in interest rates alongside falling inflation and a strong economy could help to support the market rally that has occurred in the first two quarters of the year.

Third, this chart shows how bond market sectors have performed each year since 2008. Each column represents a different year with bond market sectors ordered from best performing at the top, to worst performing at the bottom.

On the right, you can see that the Bloomberg U.S. Aggregate Bond Index is now flat on the year after struggling through April due to worse than expected inflation in the first few months of 2024 which pushed bond prices lower.

Improving inflation doesn’t necessarily mean prices will fall for all goods and services, but it does show that we are returning to a more normal environment – a good sign for markets and a harbinger of Fed rate cuts. Since lower interest rates boost bond prices, this has led to improvements in many parts of the bond market such as investment grade and high yield bonds.

Next, generating income from safe investments was a major challenge for investors from the 2008 financial crisis until only recently. This is why many investors are taking advantage of higher cash yields today.

However, there are two challenges with this. First, many cash yields are still not outpacing inflation. This means that while investors are receiving interest income, the purchasing power of their cash is still being eroded. Cash on its own cannot make up for inflation which is why stocks, bonds, and other longer-term investments are needed for long-term portfolio growth.

Second, the amount of cash that investors hold has increased dramatically. This may be related to fear around markets being at all-time highs. The challenge with waiting until interest rates decline to get back into the market is that both stocks and bonds tend to rally quickly when this occurs, making the timing incredibly tricky.

Finally, some investors may be worried about the approaching presidential election, wondering what it could mean for the country and their portfolios. While elections are incredibly important as taxpayers, citizens, and voters, the impact on markets can be counterintuitive. When it comes down to it, financial markets have performed well across both parties over the past century, as shown in this chart.

This is because the business cycle and the many factors that drive economic growth are far more important than who happens to be in the White House. This is not to say that policies don’t matter but that changes tend to be incremental and take time to impact businesses and consumers. This chart shows that from an investment perspective, it’s important not to overreact to the outcome of an election or poll results when it comes to our portfolios.

So, amidst market all-time highs, slowing inflation and the possibility of lower interest rates on the horizon, it’s important for investors to stay focused and stick to their long-term financial plans.

As you can tell, investing can be impacted by an endless number of variables.  At Dynamic Wealth Group, we focus on Simplifying the Complexity.   We follow a multi-dimensional approach, incorporating diversification of not just asset classes, but also approaches and disciplines.  Incorporating Buy & Hold with Tactical & Alternative Strategies, as that is what True Diversification should be! 

This video has laid out a number of different topics, with unknown futures.  Investing isn’t about predicting the future, it’s about preparing for the future, regardless of outcome.  As I have said many times before, “It’s the Bus you don’t see that hits you.”  Namely, if you see the bus coming you get out of the way!  We don’t know what the next “bus” will be negatively impacts or ‘hits’ the market, but a truly diversified approach, and focusing on the long term, one can help to increase their odds of success.

I hope you found these insights valuable.   If you are a financial advisor and would like more information on our Multi-Dimensional Approach towards asset management, please visit our website DynamicWG.com, or reach out directly by emailing us at:  Info@DynamicWG.com.  If you are an individual investor, we are happy to address any questions you may have and put you in touch with a qualified advisor if so desired.   Until next time, take care everyone, and make smart, logical & fact-based financial decisions.







Disclaimer:

Clearnomics and Dynamic Wealth Group, LLC are not affiliated entities.  No part of this should be taken as investment advice.  Consult your financial advisor for specific investment recommendations tailored to your specific situation. 

Dynamic Wealth Group (“Dynamic”) is an SEC registered investment adviser. SEC registration does not constitute an endorsement of Dynamic by the SEC, nor does it indicate that Dynamic has attained a particular level of skill or ability. This material prepared by Dynamic is for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product. Opinions expressed by Dynamic are based on economic or market conditions at the time this material was written. Economies and markets fluctuate. Actual economic or market events may turn out differently than anticipated. Facts presented have been obtained from sources believed to be reliable. Dynamic, however, cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.

Dynamic does not provide tax or legal advice, and nothing contained in these materials should be taken as tax or legal advice.

Any reference to an index is included for illustrative purposes only, as an index is not a security in which an investment can be made. Indices are unmanaged vehicles that serve as market indicators and do not account for the deduction of management fees and/or transaction costs generally associated with investable products. Past performance is no guarantee of future results. Actual returns may be lower.

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