Autumn is fully upon us and as we look forward to the final quarter of 2024, we hope that you and your loved ones are well.
Since the beginning of 2022, the S&P 500 is up 25% for an annualized rate of return of 8.4%, which is roughly the long-term historical norm. In 2022 the S&P 500’s negative performance of 18.2% was mainly due to elevated inflation and resulting in higher interest rates. Since the end of 2022, the S&P 500’s positive performance of 53.6% was driven by solid economic growth, easing inflation and with that a recession was avoided. The September jobs report showed that the economy added over 250,000 jobs, which was about 100,000 more jobs than expected. More jobs are good for the economy, but not necessarily good for inflation.
The Federal Reserve has a dual mandate of inflation control and optimal employment. In mid-September, the Federal Reserve cut interest rates by half a point, the first decrease since the pandemic. This gives us reason to believe we can expect to see a continuing solid economy with inflation continuing its downward trajectory, and additional rate cuts in the future.
On November 5th we will have the Presidential Election. Historically, election outcomes have minor impact on the economy. The primary drivers of the economy are private and public companies which leverage our capitalist, entrepreneurial spirit to make our economic lives more prosperous. There are clear economic policy differences between the Republicans and Democrats; however, it is very unlikely that any one party will have a majority in the House, Senate plus the Presidency to implement all their policies.
The expiration of the Tax Cuts and Jobs Act’s SALT (State & Local Tax Deduction) tax cap of $10,000 in 2025 may have significant impact on short term tax policy. The burden of this tax is felt mostly on the East and West Coast where taxes and incomes are higher. Neither Republicans or Democrats like the SALT cap and it is likely to go away, or the cap increased significantly.
Looking ahead, we expect the technology sector to continue its growth, including accelerated advancements in Artificial Intelligence (AI). The United States will likely be the leaders of AI development and its’ impact on productivity and our way of life will be profound. AI, however, is expensive as it requires massive capital investment in not only computer chips, but also electricity to power and cool the computers. Many other countries do not have the capital nor companies to support this progress.
As the end of the year approaches, our team continues our ongoing effort to improve and add value to our clients’ portfolios. In the fourth quarter and early next year, we will be rebalancing the portfolio to reflect the anticipated reduction in interest rates, which means migrating away from cash-like investments (CDs) and taking advantage of the growth areas in the US economy. You can expect to begin seeing transactions in the near future.
As always, we invite you to contact your advisor with any specific questions that you may have.
All our best,
The Management Team
Michael, Michelle, and Jolie
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