Atticus Wealth Management

THE VIEW FROM THE TOP

Market Commentary from Atticus Wealth Management
October 2024 – 4th Quarter

Key Insights on the Fed, Election, and Market Volatility in Q4

As we move further into Q4 2024, the economic landscape looks anything but conventional. Forget the forecasts of recession that lingered over last year; the economy has held steady, with inflation even ticking toward the Fed’s elusive 2% target. This shift has set the stage for a more supportive monetary policy, elevating stock indices like the S&P 500 and Dow to record highs. It’s a perfect example of how keeping an eye on the longer-term horizon often beats trying to outmaneuver the market’s short-term moves.

1 Market Highs: A Natural Bull Market Rhythm

The S&P 500 achieved over 30 new all-time highs on its way to a 15.3% gain in the first half of the year. While this is positive, it can also make many investors nervous. When the market is in uncharted territory, it’s easy to worry that it may be “due for a pullback.”

The reality is that price swings are an unavoidable part of investing and the market will certainly pull back at some point. However, the timing of these declines is difficult if not impossible to predict. At the same time, major stock market indices will naturally spend a significant amount of time near record levels during bull markets, as shown in the accompanying chart. Trying to time the market tends to be counterproductive for this reason.

2 Elections: Performance Through the Partisan Lens

As election season heats up with less than two weeks to go, the stakes feel high—particularly for investors worried about potential impacts on taxes, regulation, and trade. According to Pew, eight in ten voters are fixated on the economy. Yet, here’s a counterintuitive truth: over time, markets have generally thrived under both parties. Election cycles matter, but their direct impact on portfolio performance pales in comparison to enduring economic fundamentals like earnings growth and market resilience. While it’s tempting to recalibrate based on political changes, history suggests sticking with long-term strategies over election-driven impulses.

3 The Fed’s Shift: Strategic Easing for Stability

With inflation beginning to cool and the labor market leveling off (we’re at 4.2% unemployment), the Fed has initiated a 50-basis-point rate cut, with more expected into 2025. Rate cuts are nothing new, but this one’s different. Historically, cuts often signal crises—think 2008 or 2020. This time, it’s about engineering a “soft landing,” aiming for stable growth without overcorrection. A similar strategy in the mid-1990s saw the Fed cut rates as inflation concerns eased, setting up a decade of expansion. By threading this needle carefully, today’s Fed may sustain economic health rather than scrambling to salvage it, suggesting market stability could carry forward.

4 Geopolitical Tensions and Market Volatility

Global tensions are dialed up, and markets are watching. In the Middle East, a charged conflict between Israel and Hezbollah has escalated with recent ground operations in Lebanon, heightening risks to oil supply chains and potentially pushing up oil prices. The U.S., though better insulated from energy shocks than in the past, isn’t immune. Across Europe, the Russia-Ukraine conflict keeps economic sanctions in play, affecting energy prices globally. These conflicts add another layer of unpredictability, highlighting why diversified investments that can absorb geopolitical shocks are so critical.

5 Atticus Wealth Management’s Investment Committee Q4 Outlook

As we look to close out the year, Atticus Wealth Management’s Investment Committee remains cautiously optimistic. Though recent Fed cuts typically drive bond prices up, yields have been rising instead, driven by strong economic data and speculation that the Fed may slow the pace of future cuts. With this backdrop, sectors and factors like large-cap growth, healthcare, and consumer staples show strength in the current cycle. AI continues to offer long-term growth potential, extending its influence beyond the mega-cap tech giants. While the U.S. election and geopolitical tensions may fuel short-term fluctuations, sectors with steady cash flows are positioned well to ride out potential volatility in global markets.

In a market as intricate as this, the big picture matters. A balanced, diversified approach is key to capturing growth potential while managing risk.