-By Charles Brown, M.Brown Financial Advisors

-January 18, 2024

With 2023 in the books, it’s time to start thinking about how 2024 will play out in the financial markets. I think the two most used words in 2024 will be “recession” and “election”. Let’s take a look at both.

2024 Recession

In 2023, the US Federal Reserve hiked interest rates significantly due to high inflation and strong economic growth. As inflation has come down significantly and economic growth has moderated some, the Fed has signaled that they intend to reduce interest rates in 2024 to a more “neutral” rate. The chart below shows us the median return of the S&P 500 index* (brown line) both before and after the Fed makes its first interest rate cut (the bond market thinks March 2024 is when the Fed will make its first rate cut). We can see that out of the last 8 rate cut cycles, the S&P 500 tends to rise during the first 12 months after the first rate cut.

However, the grey line tells a different story. The S&P 500 tends to be significantly lower a year later IF the US economy enters a recession following the first rate cut. This really boils down to the “soft landing” versus “hard landing” debate going on as we speak. After periods of interest rate hikes, the economy can: continue to hang in there despite the higher rates (soft landing), or the economy can decline significantly under the weight of high interest rates (hard landing).

Which “landing” we get will be the talk of 2024. All eyes will be on recent economic data to determine if we are headed for a soft or hard landing.

2024 Election

Did you know there is a presidential election in 2024? I am sure most of you reading this are aware. I wrote an article on investing during elections in 2020, just prior to that year’s election – you can read it here. This paragraph will be an addendum to that article.

The chart below shows us both the returns on the S&P 500 index during election years and the returns after those election years. We can note that the average return during previous election years has been nicely positive. EXCEPT, of course, for a few nasty election years that corresponded with large economic recessions (2008, 2000 and 1932 – all economic “hard landings” as well!). So we can conclude that the fact it is an election year is not, in itself, a reason to worry about the stock market doing poorly.

The next chart shows us the average path of the S&P 500 index during election years, since 1950. The first thing we note is that election years tend to start out a little weak. We can also see that after a nice rise through the summer, as the election draws closer, we do see some volatility about 2 months before the election. Lastly, once the election has passed, the index tends to rise into year end.

These are just averages, of course, and anything can happen. But I think these charts help give us a frame of reference for the year. Yes, elections have a degree of uncertainty that can be unnerving for investors. But, as I said in my previous post, the election is not a surprise and therefore market participants have time to hedge that uncertainty which can reduce volatility around the event. Historically, the S&P 500 tends to rise in election years, but not without some bumps along the way.

*The S&P 500 is an index. You cannot invest directly in an index.

**The above article is informational in nature only and is not a recommendation to buy or sell securities.  All information is gathered from sources believed to be reliable, but neither Charles Brown nor Ausdal Financial Partners, Inc guarantees the accuracy of the information.  All investments carry a degree of risk.  Individuals should consult with their tax and investment professionals before making changes to their investment portfolios.

***Securities and Advisory Services offered through Ausdal Financial Partners, Inc., an SEC registered investment adviser, member FINRA & SIPC. 5187 Utica Ridge Rd., Davenport IA 52807, 563-326-2064, www.ausdal.com. Sub-advisory services offered through M. Brown Financial Advisors, a registered investment adviser with the state of Illinois. M. Brown Financial Advisors is located at 2728 Forgue Drive, Suite 100, Naperville, IL 60564, 630-637-8600.  M. Brown Financial Advisors and Ausdal Financial Partners are unaffiliated entities and only transact business in states where they are properly registered, or are excluded or exempt from registration requirements. Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission or any state regulators. Ausdal Financial Partners, Inc. does not accept buy, sell or cancel orders by email, or any instructions by e‐mail that would require your signature. Information contained in this communication is not considered an official record of your account and does not supersede normal trade confirmations or statements. Any information provided has been prepared from sources believed to be reliable but does not represent all available data necessary for making investment decisions and is for informational purposes only.