Update on the Markets:

Index	2nd Quarter 2024	Full Year 2024
S & P 500 (Large US Stocks)	4.28%	15.29%
Russell 2000 (Small US Stocks)	(3.28%)	(1.73%)
FTSE All-World ex-US (International Stocks)	0.96%	5.73%
Barclays US Aggregate (Bonds)	0.07%	(0.71%)

July 2024

Key takeaways

► Stock market steadily rises
► Inflation receding (very slowly)
► Labor market softening (very slowly)
► One Fed rate cut (maybe two?)
► It’s all about the election hereon

Mid-Year Financial Review: What Has Happened in 2024 and What to Expect

As we reach the midpoint of 2024, reviewing the year’s significant financial events and providing guidance on what to anticipate for the remainder is crucial. Here’s a comprehensive overview to help you navigate the evolving economic landscape.

Key Events and Trends in the First Half of 2024

Economic Performance:

GDP Growth: The economy has experienced moderate GDP growth, decelerating compared to the rapid recovery post-pandemic. This indicates a stabilization phase as various sectors find their new equilibrium. The real GDP growth rate has fluctuated between 1.6% and 4.9% since January 2023.

Federal Reserve Policy:

Interest Rates: The Federal Reserve maintains a cautious approach to interest rate adjustments, remaining data-dependent and patiently monitoring inflation. Despite earlier expectations of rate cuts (as many as seven!) this year, the Fed has adopted a wait-and-see stance, signaling its readiness to raise rates if inflation remains stubbornly high.

Labor Market:

Employment: The job market has shown remarkable resilience, with consistently low unemployment rates. Although wage growth has plateaued, this suggests a potential balancing act between labor demand and supply. The unemployment rate has remained stable, hovering around 3.4% to 4.0% over the past 18 months. This resilience should instill confidence in the stability of the job market and the economy overall.

Corporate Earnings:

Mixed Results: Corporate earnings reports for the year’s first half have varied. The tech and healthcare sectors have performed well, while retail and real estate have faced challenges due to shifting consumer behavior and higher interest rates. The overall theme remains AI.

Geopolitical Events:

Global Tensions: Geopolitical tensions, particularly in Eastern Europe and the Middle East, have created uncertainties and investor unease. The price of oil (and thus gasoline) has affected projections on inflation.

Stock Market Performance:

Stock Market: The S&P 500 index has shown robust performance, with a significant increase in the first half of 2024, up over 15%! This surge, powered mainly by tech (or should I say AI?), reflects investor confidence in AI’s potential to drive productivity and earnings across the economy. It’s a positive sign for the market and your investments.

Inflation Trends:

Inflation Rate: Inflation has shown signs of easing but remains above the Fed’s target rate. This persistent inflation impacts bond yields and prices, as higher inflation generally leads to higher yields and lower bond prices. The resilient economy and federal debt levels make me think we will remain in a high-interest environment for a long time.

What to Expect Going Forward

Economic Outlook:

Steady Growth: Expect moderate economic growth to continue, with potential fluctuations based on consumer spending, business investments, and government policies.

Inflation Management: The Fed’s actions will be crucial. If inflation shows persistence, further rate hikes may be on the horizon, impacting borrowing costs and economic activity. Right now, inflation is slowly receding. Wage growth is slowing. The Fed has a dual mandate: to promote maximum employment and stable prices. Fed Chairman Powell may soon switch from fighting inflation to maintaining full employment. We expect at least one rate cut this year, which could potentially lower borrowing costs and stimulate economic activity, affecting your investment strategy.

Investment Strategies:

Reduce stock overweight: Due to such strong performance, I’m slightly reducing my stock overweight. I still expect a great year. Such a solid first half usually bodes well for the rest of the year—no guarantees. Since 1928, there have been 29 years when the S&P 500 was up 10% or more through June. By year-end, the average gain was 24%.

Reduce bond underweight: I’m putting the money I take from stocks into bonds and the Schwab money market fund, still yielding over 5.00%. Bonds sport very attractive yields and are outpacing inflation. I’m extending their maturity to lock in rates.

Asset class rotation: I’m further reducing large-cap growth and adding to large-cap value. This decision is based on our analysis of the market and our belief that large-cap value stocks are currently undervalued. Due to the deficient quality of stocks in most small-cap indexes, most of the money in US small-cap stocks will move to actively managed funds, providing better returns in the current market conditions.

Market Volatility:

Be Prepared: Market volatility will likely persist due to economic uncertainties, geopolitical risks, and the US presidential election.

US Presidential Election:

Election Impact: The upcoming US presidential election will significantly impact the financial markets. Historically, election years bring about volatility as investors react to potential changes in fiscal and economic policies. One crucial issue: The Trump-era tax cuts will expire in 2025 if Congress does nothing.

November could be chaotic. Will Trump concede to losing again? How long will it take to count mail-in ballots? Will Trump go to prison? Will Biden die or seriously decline right before the election?

Mid-year is an excellent time to review your financial goals. Ensure that your investment strategy aligns with your long-term objectives and risk tolerance. The next few months leading into the election may be fraught with disturbing events. Remember to think long-term and stay the course. Feel free to reach out for a personalized review of your portfolio and discuss any adjustments needed to align with the current economic landscape.

Thank you for your trust and confidence. Let’s continue to work together for a prosperous future.

Sincerely, 
Henry 

Henry Gorecki, CFP® 
HG Wealth Management LLC 
401 N Michigan Ave, Suite 1200
Chicago, IL  60611
312-723-5116