09 Aug Wealth Solutions Report – Predicting Stock Markets For The Second Half Of 2024
Dynasty Affiliates Predict Equities Markets And Discuss Economic Factors, Opportunities And Risks
As we look towards the second half of 2024, uncertainty remains around the markets, partially driven by the Federal Reserve, which may cut rates in September for the first time since March 2020 if economic data stays on course. The upcoming election also clouds the road ahead, as well as Monday’s market turbulence.
Advisors, wealth managers and – most importantly – their clients, need to examine the factors, trends, opportunities and risks in the equities markets for the second half. To hear seasoned views on how economic indicators will move, predictions for stocks, and potential opportunities and pitfalls, we reached out to three senior executives from affiliates of Dynasty Financial Partners.
Stock Market Predictions
Examining how the stock markets will fare for the second half of 2024, Matt Liebman, Founding Partner and CEO of Amplius Wealth Advisors, caveats that short-term forecasts present challenges, and states that “we expect volatility to remain fairly elevated at least until this unusual election is completed.”
Eric Branson, Director of Investments at Cyndeo Wealth Partners, also sees “choppiness as we approach the election, as the political winds shift back and forth between the candidates.”
According to Branson, the more significant factor is how the Federal Reserve handles interest rates. “The current data has increased the markets’ anticipation of a rate cut in September and again later this year. Once these are known then it is our opinion that the markets will grind slightly higher by year end from current levels.”
“Stock market performance in the second half of this year, we believe, will present more opportunities for active management than the first half of the year,” says Mark Rich, Director of Investments at Procyon Partners. “The names that have led the market will need to start showing proof that AI is worth the massive investment that is needed to become a leader in the space.”
Rich says that the best opportunities will be in stocks outside of those that led the first half of the year. “We are allocating more towards small and mid-cap stocks along with a focus on more balance between growth and value going forward. These names present better entry points from a valuation standpoint. However, quality fundamentals are more difficult to find within these asset classes, and strong active managers will have a leg up on the passive index exposure.”
Key Economic Indicators
These predictions of how equity markets will fare in the second half of the year are partially based on the performance of economic indicators such as GDP, unemployment and inflation.
Rich expects the Fed to progress against its inflation target of 2%, but not to reach that target by year end.
In a similar vein, Liebman says that “inflation will decrease slightly as the impact of the Federal Reserve’s tight policy impacts the economy.”
Branson says that higher interest rates will at some point start to bring inflation under control. “The question of when we will start to see the data reflect that might have been answered with the recent employment data.”
He says that markets will look to see if the Fed can “land the plane” of the economy smoothly, and, in the meantime, investors can expect turbulence. “Even though no one likes turbulence, it is a normal part of the journey to get us to our destination.”
Rich points out that recently the employment “numbers have started to roll over. The overall employment environment remains strong historically, but has a tendency to loosen quickly when these numbers start to trend in the wrong direction.”
“Barring a material economic slowdown, we expect interest rates to be the driving factor for stock market performance in the near term,” says Rich. “With the market expecting cuts starting in September of this year, a lower interest rate environment should be most positive for small cap stocks that are more reliant on debt. Additionally, growth should benefit from lower interest rates as they can finance their growth at a more reasonable cost.”
Risks And Opportunities
While viewing it as unlikely, Rich says that the largest threat to the market is a reacceleration of inflation, which would force the Fed to shift towards restriction again.
Branson states that the largest risk – but also the largest opportunity – is market turbulence. “If the investor can see past the momentary turbulence and look for discounted entry points to good businesses, then when the turbulence settles down they will be glad they did.” He cautions against a fearful run for the exits during turbulent markets.
Rich states that the largest opportunities today, which he views as AI and the upcoming elections, are also the largest risks.
“AI is a transformational investment opportunity and should see continued growth,” he says. “However, companies involved in the AI trade have already experienced significant price increases and many are trading at lofty valuations relative to history.”
While stating that the elections should not have any long-term impact on equities markets, in the near term, Rich says, “Attractive entry points may present themselves as a result of rhetoric or the results of the upcoming election.”
Liebman views concentration as a central risk and diversification as an opportunity. “Large capitalization U.S. technology stocks have been the best performers over multiple recent time periods. Investors are at risk from becoming too concentrated in those few large stocks. We think that there is a real opportunity to diversify to other areas of the market.”
Also finding benefits in diversification, Branson sees opportunity in investors broadening out from the currently popular AI trade and the “Magnificent Seven” stocks, which are Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA and Tesla.