{"id":9693,"date":"2024-02-12T15:28:46","date_gmt":"2024-02-12T15:28:46","guid":{"rendered":"https:\/\/zacksim.com\/financial-professionals-insights\/?p=9693"},"modified":"2024-02-12T15:28:46","modified_gmt":"2024-02-12T15:28:46","slug":"whats-ahead-for-the-market-in-2024-look-at-history","status":"publish","type":"post","link":"https:\/\/zacksim.com\/financial-professionals-insights\/whats-ahead-for-the-market-in-2024-look-at-history\/","title":{"rendered":"What’s Ahead For The Market In 2024? Look At History"},"content":{"rendered":"\n

What History Tells Us to Expect in 2024<\/strong><\/p>\n\n\n\n

2024 already feels like a unique year to be an investor.<\/p>\n\n\n\n

There are two ongoing wars with simmering geopolitical tensions, which threaten deeper U.S. involvement. The Federal Reserve appears poised to cut interest rates in 2024, but the timeline is far from certain. And perhaps most obviously, there are critical elections happening across the developed world, the most consequential of which is the U.S. presidential election.1<\/sup><\/p>\n\n\n\n

In thinking through all of these various factors affecting the global economy and markets, it is often useful for investors to look back on history. The past doesn\u2019t predict the future, of course. But history can serve to remind investors of what the economy and markets are capable of overcoming, and it can help us identify patterns useful for assigning probabilities.<\/p>\n\n\n\n

Let\u2019s start with geopolitics. The breakout of new crises and regional conflicts tends to hurt sentiment, create short-term uncertainty, and drive volatility. But in my view, we\u2019re likely past the uncertainty phase with the Israel-Hamas war and the Russia-Ukraine war\u2014markets have had plenty of time to price in each war\u2019s likely effect on global economic output.<\/p>\n\n\n\n

To be fair, very recent escalations could easily change this calculus if U.S.-led retaliatory strikes on Iran-backed militias expand into something much bigger. This will be something to watch closely in the weeks ahead.<\/p>\n\n\n\n

But we also know that looking back at conflicts since 1925 (when reliable S&P 500 data became available) such as the Korean War, Vietnam, the Cuban Missile Crisis, the Iran\/Iraq War, and two U.S. wars in Iraq, it was only World War II and the Russia-Ukraine war that coincided with a bear market. I would argue that World War II was the root cause of that bear market, while inflation and the shock of aggressive monetary policy were the root causes of 2022\u2019s bear market\u2014not necessarily Russia\u2019s invasion.<\/p>\n\n\n\n

In terms of Fed policy, I think there\u2019s too much emphasis being placed on predictions about rate cuts in 2024. Investors are too focused on when and how many times<\/em> the Fed will cut rates in the new year, grossly underappreciating the most important takeaway of all: that the Fed is poised to cut rates during an economic expansion<\/em>. Historically, that\u2019s quite rare.<\/p>\n\n\n\n

In the past 50+ years, there have only been five instances when the Fed engaged in rate cuts during an economic expansion. As seen in the table below, in three of these instances, the Fed cut rates by 75 basis points, which aligns with current projections moving the benchmark fed funds rate from 5% – 5.25% down to 4.25% – 4.5%. In every cycle when the Fed cut rates during an economic expansion, the S&P 500 delivered positive returns\u2014and often very strong returns.<\/p>\n\n\n\n

Rate Cuts During Economic Expansions, i.e., \u201cSoft Landings\u201d<\/em><\/strong><\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

Finally, there\u2019s the election year. The primary contests are ongoing, but if the U.S. gets a Biden-Trump rematch in the general election, it will be the first time since 1892 that the two parties\u2019 candidates have already been president. That last time was Cleveland versus Harrison.<\/p>\n\n\n\n

This is an interesting fact, sure. But in my view, it\u2019s also a very important insight for markets. It means there\u2019s already a reasonably good understanding of policy positions and proposals from each candidate, which could theoretically equate to fewer uncertainties about taxes, property rights, and the business environment no matter who wins. Fewer uncertainties are a good thing.<\/p>\n\n\n\n

Historically, markets have followed similar patterns during election years, with volatility in the runup to the general and a \u2018relief rally\u2019 once the contest is decided. It\u2019s worth noting, too, that in both years when Trump (2016) and Biden (2020) were elected, stocks delivered above-average returns. I think that\u2019s a testament to the fact that stock market performance is a lot less about the candidates and a lot more about the economic and earnings backdrop.<\/p>\n\n\n\n

Bottom Line for Investors<\/strong><\/p>\n\n\n\n

It\u2019s only February, and it feels like there\u2019s quite a bit of concerning information out there to process. Geopolitics is center stage, but the possibility of another contentious U.S. presidential election and uncertain timing of interest rate cuts are also likely to weigh on investor sentiment.<\/p>\n\n\n\n

History tells us the economy and markets can absorb these challenges. From an economic standpoint, I think inflation data has even more room to improve in the coming months, and Zacks sees a strong year for earnings growth compared to 2023. If narratives turn more negative in 2024, which they easily can, remember to return to the question that matters most: what are the economic fundamentals telling us?<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Mitch offers his analysis of the key factors at play for investors in the months ahead\u2014and how history can help inform us on what to expect. <\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[181,1],"tags":[],"class_list":["post-9693","post","type-post","status-publish","format-standard","hentry","category-financial-professionals","category-mitch-on-the-markets"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts\/9693","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/comments?post=9693"}],"version-history":[{"count":2,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts\/9693\/revisions"}],"predecessor-version":[{"id":9696,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts\/9693\/revisions\/9696"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/media?parent=9693"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/categories?post=9693"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/tags?post=9693"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}