Q4 2024 Market Intel Report: Navigating Election Year Volatility and Fed Rate Cuts

As we enter the final quarter of 2024, our team at Prosperity Capital Advisors (Prosperity) is here to share what we’re seeing in the markets and what it means for investors like you. As President and Co-Chair of the Investment Committee, I’m here to offer the following key insights: A Look Back at Q3 2024 Despite the buzz surrounding the upcoming election and shifts in Federal policy, the markets demonstrated remarkable resilience in Q3. Here’s a breakdown of the performance:

• The S&P 500 gained almost 6%
• The Dow Jones Industrial Average led the pack with over 8%
• The tech-heavy NASDAQ returned almost 3%

When we zoom out to look at the year so far, both the NASDAQ and S&P 500 are up nearly 20% —  a strong performance despite the uncertainties. Key Themes for Investors Based on analysis from Lincoln Financial Group, there are three main themes that are top of mind for investors right now:

1. The Fed’s Rate Cutting Cycle: Implications for Investors

In September, the Federal Reserve initiated its rate-cutting cycle with a 50-basis point reduction. Here’s why this matters:

• Historically, when the Fed starts cutting rates, cash yields tend to fall quickly – often by about 2% in just 12 months.
• With substantial cash reserves currently on the sidelines, we might see significant movement into the stock market as investors search for better returns.
• On average, stocks have returned about 7.2% in the year following the first rate cut. In scenarios where a recession is avoided, that figure jumps to an impressive 19.6%.

While this doesn’t necessarily mean going all-in on stocks, it’s certainly a factor to consider if you’ve been holding a large cash position.

2. Elections and Markets: Understanding the Impact

As we approach November, it’s natural to feel some anxiety about how the election could impact investments. Here’s what historical data tells us:

• We typically see increased market volatility in the months leading up to an election.
• However, once the election concludes, markets tend to rally. On average, investments made on November 1st of an election year have gained over 16% in the following 8 months.

At Prosperity, we advise against letting short-term election jitters derail your long-term investment strategy.

3. Volatility: Potential Opportunity in Disguise

Market choppiness can be unsettling, but volatility could actually present opportunities:

• The VIX, often referred to as the market’s “fear gauge,” tends to spike during uncertain times.
• Interestingly, investments made when the VIX is high have historically performed quite well.
• For instance, when the VIX has been above 55, the S&P 500 has returned an average of 31.7% in the following year.

This suggests that periods of market turmoil might actually be potential buying opportunities. What This Means for Your Portfolio As we navigate these dynamic market conditions, Prosperity recommends keeping the following points in mind:

1. Maintain focus on long-term goals. Short-term volatility is normal, especially in election years.
2. Avoid attempting to time the market. Consistent market participation, not perfect timing, is key to building wealth.
3. If you have significant cash reserves, consider strategically investing, particularly during market dips.
4. Ensure your portfolio aligns with your risk tolerance and long-term objectives.

Start Planning For 2025 At Prosperity Capital Advisors, we’re committed to helping you make sense of the markets and stay on course to meet your financial goals. If you have any questions or want to review your strategy, reach out to a holistic Prosperity advisor near you for more personalized insights about your future.   Written by: Dave Alison, CFP®, EA, BPC    Disclaimer: The information provided is based on data available as of Q3 2024 and is subject to change. This content is for informational purposes only and should not be considered as individual investment, tax, or legal advice.