This Week's "Noise"
Lots of international news.
The French Government is in turmoil after a budget measure. As a result, the prime minister is expected to face a vote of no-confidence on Wednesday.
Additionally, the German Chancellor is facing a no-confidence vote in the coming weeks.
Ukraine's President stated that a peace deal may be reached involving NATO and ceding territory to Russia.
South Korea declared martial law for the first time in 50 years. The National Assembly quickly passed a motion to overturn it.
“We Didn’t Start the Fire” by Billy Joel was released as a single on Sept 18th, 1989. This last point is irrelevant, but I felt it should be noted.
Current Market Outlook (6 to 12 months)
Market
The market has gone up sharply since moving past what many people thought would be a drawn-out election process, with the S&P up 4.6% and the Dow Jones up 6% (CNBC). The S&P also hit a new all-time high on Monday the 2nd for the 54th time in 2024, lining up with our beginning-of-the-year prediction of between 50 and 60 new ATHs.
Dovish Fed speak has put the market’s likelihood of a December rate cut of 25bps at a 73% chance.
Economic
When do we expect a Recession? We expect a 20% chance of a recession in any given year. So, we look at four key factors to indicate whether that chance is higher or lower than average. The four historical drivers of recessions are Black Swan events (for example, the COVID-19 pandemic), hawkish Federal Reserve policy (rapidly rising Fed funds rates), a commodity spike (particularly in energy/oil currently in the low $70s), or extreme valuation unwinding.
Black swan events are nearly impossible to predict; however, of the three remaining typical recession drivers, only one (extreme valuations) seems in the mix.
Treasury yields have moved quickly in the past seven weeks, with the 10-year at roughly 4.4%. The move may also signify a return of the "Bond Vigilantes" demanding higher rates as deficits rise. The other rationale for this type of move is due to expected GDP growth expectations, which forecasters currently expect to sit well above 1.5% and closer to 2% (GSGIR).
Long-Term View (4 to 7 years)
We believe the US economy will continue to outperform other world economies in the long term. This is supported by a combination of re-shoring manufacturing, new investments resulting from the Inflation Reduction Act, US energy independence, and higher productivity due to implementing Artificial Intelligence (AI) software/systems.
Due to the strong 2024 returns (+24% for the S&P 500), we are adjusting our longer-term outlook for the US stock market accordingly (FactSet). We believe the S&P 500 index should be 7,000 to 8,000 by the end of 2028. This represents an approximately 20% to 40% return from the current level.
Bonds have re-emerged as an important part of asset allocation as yields have risen. We expect a diversified bond portfolio to produce returns 3% to 5% above inflation for the next 5 to 7 years.
We currently estimate that the net worth of American households rose by $2.8 trillion in the third quarter to a record $157.2 trillion, or roughly $446,000 per head. Total net worth is up 11% over the past year and 47%, (or a staggering $50.1 trillion), over the past five years, easily outpacing an estimated 23% increase in consumer prices and a 35% increase in personal income over the same period.
This wealth surge has come from both stocks and housing (Dr. David Kelly, JPMorgan Asset Management, September 30, 2024).
See important disclosures below:
The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.
Any opinions are those of John O’Hare II and not necessarily those of Steward Partners. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected.
Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.
Asset Allocation and diversification do not assure a profit or protect against loss in declining financial markets.
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.
The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system.
Securities are offered through Steward Partners Investment Solutions, LLC (“SPIS”), registered broker/dealer, member FINRA/SIPC. Investment advisory services are offered through Steward Partners Investment Advisory, LLC (“SPIA”), an SEC-registered investment adviser. SPIS, SPIA, and Steward Partners Global Advisory, LLC are affiliates and collectively referred to as Steward Partners.
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