Keep Politics Out of Your Portfolio – 2024 Edition

The U.S. Presidential election is dominating news cycles, and as an investor, it’s easy to let political fervor influence your investment decisions. However, maintaining a clear boundary between politics and your portfolio is crucial for long-term financial success. Here are several strategies to help you navigate election years without letting politics sway your thinking.

• Markets Don’t Pick Sides: Growth is driven by the economy, tech, and global events – not who’s in office.
• Political Predictions Are Tricky: Betting your investments on specific political outcomes is risky because the path from campaign promises to enacted policies is often unpredictable.
• Stay Rational: Emotionally charged choices aren’t often based on sound financial principles.
• The Power of Diversification: Diversifying your investments reduces the impact of any single political event.
• Embracing a Long-Term Perspective: Staying focused on your long-term goals helps you ride out the temporary waves of election-related market movements.

Successfully navigating election years requires a disciplined approach that keeps politics out of your portfolio. Look at the bigger picture, set aside your political beliefs, and you’ll make smarter decisions with your money.

Jeff Wetta, RPS and Dustin Jackson, CFP® RICP®
Managing Partners

Your Market Update

Market strength continues with added volatility

As we reach the end of September, equity markets remain positive year-to-date despite continued volatility. The beginning of September got off to a negative start but reversed as the month progressed in hopes of a cut in the federal funds rate. The S&P 500 was up 1.5%, the tech-heavy Nasdaq was up 2.1%, and the slower-growing companies of the Dow Jones Industrials were up 1.0% month-to-date as of September 25th.

Earnings – the third quarter is soon to be in focus

Company earnings season has concluded for the second quarter and with it came guidance for the upcoming quarters. Reporting for the quarter was mixed but, overall, aggregate earnings were higher than expected at 10.8%. Earnings expectations for third quarter are high as well.

September economic data

On September 18th, the Federal Reserve cut the federal funds rate by 50 bps. This was on the higher end of expectations and considered a stimulative move for equity markets. The market’s initial reaction was mildly positive, but the following day we saw a larger broad-based move up in equity markets. Rates have not been cut in four years, so this Fed action was a notable change for investors.

The federal funds rate cut followed the release of the August CPI report by the Bureau of Labor Statistics (BLS) on September 11th. In it, the BLS reported that headline CPI rose by 2.5%, which is an improvement from the prior month’s 2.9%.

The BLS also reported labor statistics on September 6th. August closed with 142,000 jobs added (28,000 more than July) and wage growth came in higher than expected at 3.8% year-over-year. Lastly, the unemployment rate fell by a tenth of a percent to 4.2% in August. While these numbers are not as strong as they were earlier in the year, they do not support a “hard landing” economic scenario.

To Sum Up

We maintain our positive view for 2024, and the continued market volatility that started in July has not derailed our view. Year-to-date as of September 25th, the S&P 500 is up 21.2%, the Nasdaq is up 19.1%, and the Dow Jones Industrials is up 12.8%. We believe equity returns will likely trend moderately lower with periods of volatility over the next few months. Our positive view is driven by two main factors: continued earnings growth and the beginning of a Fed rate cut cycle.

As mentioned above, second quarter earnings came in higher than expected and it’s anticipated that third quarter earnings will be high too. We have incorporated these relatively elevated equity valuations into our analysis and exercise care as we build portfolios.

The Fed began what seems to be a series of rate cuts in September and, traditionally, the start of a Fed rate cut cycle provides a tailwind to upcoming equity market returns. For fixed-income investors, rates remain higher than in prior years, although expected yields will come down as rates come down. It will likely make sense to shift to higher-yielding alternatives as rates continue to fall.

The upcoming presidential election is another factor we are watching closely and anticipate that it will become more notable to the market over the next few weeks. For now, markets seem laser-focused on earnings, the potential for recession, residual inflation, and the level of rate cuts.

Overall, our team continues to focus on a wide array of economic statistics, market events, and company earnings as we approach the final quarter of 2024.

Sevasti Balafas, CFA, CPWA®
CEO & Founder
GoalVest Advisory

Sources: JP Morgan Asset Management, Bureau of Economic Analysis, Bureau of Labor Statistics, Morningstar, Factset, Slickcharts, Yahoo Finance, and Ycharts

Keep Politics Out of Your Portfolio

In our latest video, Jeff Wetta discusses the importance of why it isn’t a good idea to let the political environment influence your portfolio.