Financial Market Update

Summer 2024

By: Jacob McConnell, CFP®

When will interest rates start to come down? How will overseas conflicts affect US financial markets? What will be the impact of the upcoming presidential election on my retirement accounts?

These are just a few of the questions that US investors are asking as we head into the summer months. While we will attempt to comment on each of these items, recognize that nobody truly knows these answers, and anybody who claims to know them might not be the first person you want to talk with about your finances. That being said, all any of us can do is take the information we have and make projections, not guarantees, about what the future may bring.

Although inflation numbers have dropped significantly from their 2022 levels, the Fed does not seem convinced that it has fully defeated inflation.

Let’s start with interest rates. As a result of inflation metrics not seen for decades, the Federal Reserve spent the majority of both 2022 and 2023 raising rates. The thought was that by increasing the cost associated with borrowing money, the economy would slow down and, as a result, so would price increases. Rising interest rates are typically bad news for the stock market, and many investors felt this in their 2022 returns. 2024 has been a story of the Federal Reserve holding interest rates steady. Although inflation numbers have dropped significantly from their 2022 levels, the Fed does not seem convinced that it has fully defeated inflation. The general consensus seems to be that the next move of interest rates will certainly be downward, but it is possible that this will not occur until the latter part of 2024. The anticipation of downward rate movements should make both stock and bond investors happy, as there is typically a correlation between decreasing interest rates and rising returns in stocks and bonds.

We are treading in largely uncharted waters in trying to predict what the Russia-Ukraine and Israel-Hamas wars will mean for the stock market. The great speed at which news headlines can circulate amongst the masses and the prompt financial responses they incite from investors is like never before in our history.

Given the looming threat of US involvement in these wars, many individuals have a strong sense of fear and want to keep their funds safe, within arm’s length, and free from potential risk. As has always been the case when investing in the stock market, investors must realize that this is a risk-reward game. The potential reward of the stock market can only be earned by being able to tolerate the risk of a possible dramatic decline. We can draw comfort knowing that the stock market has been through wars before, and a diversified portfolio seems to be the best financial brace against an unknown future. Most importantly, join in praying for peace in our world and an end to violence.

On to the important topic of this year’s election. While the colors red and blue will be on voters’ minds this November, historical performance of the S&P 500 suggests that another color should be on investors’ minds this election year… green!

That’s right, despite the uncertainties that election years bring, studies show that in the 24 times that a US presidential election was held and the performance of the US stock market was tracked, stock market performance ended the year positive 75% of the time. See the table for proof.

No matter your thought on interest rates, international wars, or US politics, the stock market will continue to go both up and down. Remember that investment account balances do not define your life, the market has historically been up more often than down, and a long-term view is the best perspective to take when investing. If you have a solid financial plan in place, stick to it! If you do not, there is no better time to start than now.

The creation of a financial plan and the discipline to remain steadfast in it will undoubtedly produce the best long-term outcome for your financial future.

S&P 500 Index price returns in election years and US presidential election results

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Observations

In the 24 election years since 1928:

• 18 of the 24 years (75%) provided positive returns

• Average election year return was 7.49%

• In the calendar year after the election, average return was 7.63%

• Performance can vary when there is a change in party

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Read the full Summer 2024 newsletter here.

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^{All investing involves risk, including the loss of principal, and there can be no guarantee that any investment strategy will be successful. Diversification is a method used to help manage investment risk; it does not guarantee a profit or protect against investment loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Past performance is no guarantee of future results.}

^{Jacob McConnell is a Registered Representative offering Securities through The O.N. Equity Sales Company, Member FINRA/SIPC, One Financial Way, Cincinnati, Ohio 45242 (513) 794-6794.}

^{Investment Advisory services are offered through Hummel Wealth Management and O.N. Investment Management Company. Hummel Wealth Management is not affiliated with The O.N. Equity Sales Company or O.N. Investment Management Company.}

^{Resources: https://www.macrotrends.net/2526/sp-500-historical-annual-returns}

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