Last Quarter of the Year
Now that we have entered the final quarter of 2024, we seem to be amid a good fundamental scenario for stocks and bonds: The Federal Reserve is now cutting interest rates while the economy maintains steady growth. While there are always risks and uncertainties, we have made it to the Fed’s policy shift without the threat of recession in sight.
This is good news for subscribers who follow our recommendations. We made gains in September historically the weakest month for stocks. Looking ahead to the final rate cut of 2024 our portfolios hope to supplement the already attractive year-to-date performance.
Loyal readers know that we have been behind the economic “soft landing” scenario for a couple of years now. But it’s a tricky proposition and we recognize the soft landing has been tough for the Fed to achieve in the past. But after a rocky start in 2021 (remember the Fed referring to inflation as “transitory?”) in our view the Powell Fed has done an excellent job grappling with inflation without slamming the brakes on the economy.
There are good reasons backing our belief that the Fed will succeed this time. We have discussed many of these reasons in recent months. Henry Allen, macro strategist at Deutsche Bank, outlined some of them in a recent article that appeared in MSN. We have paraphrased his five reasons to be optimistic about the markets for you here:
1. The Fed is underway on a monetary easing cycle.
2. Global economic data doesn’t point to a recession.
3. The lead-up to the recent Fed cut announcement has already served to ease financial and credit conditions.
4. Risk assets have fought through volatility and continue to be resilient and a good sign for the underlying economy.
5. Seasonality is working in investors’ favor as Fourth Quarter returns historically have been strong.
Of course, it’s not all rainbows and unicorns as we go to press. There is considerable uncertainty regarding the upcoming election and where fiscal policy may lead us. Geopolitical risks seem to be the highest they’ve been in a while, particularly in the Middle East and the Longshoremen’s’ strike could rekindle inflation just when the Fed thought they had it under control. All these items, and others we don’t see today, could put stock and bond prices at some risk over the next 3-6 months. Especially given todays’ lofty prices.
Despite these wildcards, the fundamentals are favorable at this time and that should lead to further investment gains.
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