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What do you think 2024 will bring from an economic perspective? Will the Dow Jones Industrial Average break 40,000 or fall back? How will the election affect the market? What about inflation and interest rates? Artificial intelligence and giant corporations? NVIDIA (NVDA)? Retirement? All of the above? You’re not alone if you’re thinking about what your finances will hold for the rest of the year. Before you lose any more sleep, know that there’s a lot more to come this year, and there’s a way to take it all in stride.
In this article, we leverage the expertise of financial advisors, the Fed, and other institutions to explore how markets will perform through the end of the year, how to think about investing, and whether the U.S. election and events around the world will affect where you invest. We also cover inflation, interest rates, AI companies, and other areas.
So far in the stock market in 2024
The S&P 500 is up 15% so far this year. The Dow Jones Industrial Average closed at 39,494.67 as of June 21, on the verge of breaking through 40,000. The Nasdaq has risen nearly 19% so far this year. The artificial intelligence sector continues to perform well, with AI company Nvidia Microsoft MSFT was ranked as the world’s largest publicly traded company in June, but has since dropped to third place. apple (APPL). All of these developments are promising.
“Market sentiment feels pretty good right now,” Robin Giles, CFP and founder of Apex Wealth Management in Katy, Texas, told me. “The recession that everyone said was inevitable over the past few years has not materialized. Prices are high, but the stock market is also reaching new highs.”
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Inflation and interest rates in 2024
The U.S. inflation rate stood at 3.27% at the end of May 2024, still too high for the Fed to cut interest rates, the central bank said. The prime interest rate was at 8.5%. The Wall Street Journal Interest Rate Table. “The federal funds rate is currently between 5.25% and 5.50%. With that in mind, you can see what the rule of thumb for ‘fed funds rate plus 3’ is: 3 + 5.50 = 8.50,” writes David Rodeck in Forbes.com’s “What’s the Prime Rate Today?”
Fed Chairman Jerome Powell has said the central bank would cut interest rates if inflation falls to 2%, which could happen this year or next.
“We just saw interest rate cuts in Canada and Europe this week,” Giles told me on June 12. “I think we should be seeing an interest rate cut in the U.S. as well,” he added.
She said the stock market has already “priced in” a rate cut, so the impact of the cut, if it actually happens, may in some ways be minimal, but it could ultimately lead to an improvement in overall GDP as borrowers who have been avoiding higher interest rates return.
Jason Ware, chief investment officer at Albion Financial Group in Salt Lake City, believes the rate cut will encourage more investment in the stock market. “There’s more than $6 trillion in money market funds, so you have to think that when interest rates finally come down (the Fed cuts rates), some of that money will flow into stocks in search of higher returns,” Mr. Ware said.
Nvidia, AI and other areas to watch
Forbes contributor Jason Kirsch, a CFP in Portland, Oregon, noted that technology is No. 1 among the top five sectors to watch this year.
“AI is viewed by many, including me, as revolutionary and will drive the next wave of growth and innovation in the sector,” he wrote. “Despite market volatility and regulatory challenges, the technology industry remains a hub of innovation and presents significant opportunities for investors.”
Kirsch listed four other areas:
- Healthcare includes pharmaceutical companies, healthcare providers, medical device manufacturers, and biotechnology companies.
- Industry. This sector includes the manufacture and distribution of machinery, transportation equipment, aerospace, defense, and building products, as well as goods used in construction, manufacturing, and infrastructure development.
- Agriculture. Its main goals include producing crops, managing livestock, and providing food and raw materials for various products.
- Mining: The extraction of valuable minerals and other geological materials from the earth is essential to produce raw materials for a variety of industries, including construction, manufacturing, and technology.
Rising cost of living
The rising cost of living is causing stress for families and busting budgets. The May 2024 All-City Consumer Price Index (CPI-U) was reported to have increased 3.3% for the 12 months ending in May, a lower rate of increase than the 4% increase for the 12 months ending in April. Within these figures, the food index increased 2.1% over the past year.
According to a press release issued by the Bureau of Labor Statistics, which oversees the CPI-U, here’s the breakdown of the May 2024 numbers: “The housing index rose in May, more than offsetting the decline in gasoline prices, increasing for the fourth consecutive month by 0.4%. The food index increased 0.1% in May. The eating out index increased 0.4% from the previous month, while the food at home index was unchanged. The energy index decreased 2% from the previous month, driven primarily by a 3.6% decrease in the gasoline index.”
“Price increases are affecting everyone and I don’t see the situation changing dramatically over the next six months,” Giles said, adding that he was aware of recent news that grocers Target and Aldi were cutting prices, but that it would be a “very small impact.”
Tax Laws and Changes
“Many tax provisions have inflation adjustments, but not all,” Larry Pon, a CPA with Pon & Associates in Redwood City, Calif., told me. These adjustments are important for tax planning for 2025. He added that Congress has given the IRS authority for a wide range of rules that affect taxpayers, including adjusting tax rate brackets, the standard deduction, gift and inheritance deductions, IRA contribution limits, and retirement plan contribution limits.
He encouraged investors and their advisers to closely monitor the stock market and look for tax-saving opportunities when certain securities fall, using methods such as tax loss harvesting or Roth conversions, so “when stock prices recover, you’ll have made a gain tax-free,” he added.
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US politics and other geopolitical factors
The outcome of the US presidential election may result in minimal, short-term changes to the stock market, but is usually not game-changing. The US Bank’s “Impact of Presidential Elections on Stock Markets” reports that the data shows that “market returns are typically driven more by economic and inflation trends than by election outcomes.”
“Clients are often nervous during election years, and many have preconceived notions that a particular party or candidate will negatively impact the stock market,” said Brandon Gibson, a CFP at Gibson Wealth Management in Dallas. “While volatility is not uncommon during election years, the reality is that there is not much difference between political parties when it comes to historical stock market returns or who holds the nation’s highest office.”
He added that it’s more likely that clients will be “intimidated by the hype they read in print or see on TV or the Internet and will pull out of investing altogether” — an unsound strategy for long-term growth.
Like presidential elections, geopolitical developments have historically had little impact on global stock markets. But they can shake up domestic stock markets, according to a study by JPMorgan Private Bank called “How Do Geopolitical Shocks Affect Markets?”, which looked at major events from 1940 to 2022, including wars, terrorist attacks, Brexit, and the assassination of President Kennedy. The only exception was the 1973 “oil shock.”
“This was primarily due to a prolonged oil shortage which led to macroeconomic conditions of ‘stagflation’ (high inflation in the face of poor productivity growth) – in other words, high oil prices in the 1970s made it difficult for the economy to function efficiently,” the bank’s report said.
Market Sentiment and Investor Behavior
“Despite the economy being good and markets being strong, the overall sentiment is oddly not good. It’s kind of this ‘soft data vs. hard data’ discrepancy that we’ve all been puzzling over for a long time,” Albion’s Ware told me. Ware thinks this is partly politics, and partly because “the bad days of inflation are still very raw” in the minds of Americans. Still, he adds, markets have held up well as investors continue to hold on to stocks and invest.
Is a stock market crash possible and what are other predictions?
Financial experts say a stock market crash is unlikely this year. But stock price pullbacks and corrections are expected. Some of that could be due to election uncertainty, a mild recession, lackluster employment data, a hawkish Fed, etc.,” Ware said. But anything that causes a market pullback could certainly be a buying opportunity. “So investors should expect that and be prepared to buy,” Ware added.
Apex’s Giles believes market volatility will subside and stabilize once the U.S. election is over and investors know what the political landscape will be for the next four years. “If we can keep negative surprises to a minimum, markets and investor behavior should remain strong for the rest of the year,” he added.
Conclusion
What does the future hold for the markets for investors? Who knows, that’s for sure. But most financial advisors I’ve spoken to believe that by paying attention to the markets, their periods of minimal volatility, pullbacks and dips, declining inflation and perhaps subsequent lower interest rates (despite a fierce presidential election and rising costs of everyday items), solid investment opportunities will continue to present themselves. So buckle up, watch the ups and downs, and use them to your advantage when the time comes.
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The Forbes brain trust has crunched the numbers, conducted the research, and done the analysis to find some of the best places to make money in 2024. Download Forbes’ most popular report, “12 Stocks to Buy Now.”
