Market Outlook through end-2024

What can we expect for the stock market for the rest of 2024?  

Discover how the U.S. elections, inflation, the economy, and Federal Reserve actions intertwine to influence market trends for the rest of 2024. Join hosts Steve Davenport and Clem Miller as we consider the recent flat trend and high daily volatility.  

We consider the electoral landscape: the excitement building around Harris as potentially the first woman president, the latest polling numbers, the critical role of electoral votes, and the desirability of divided government.

We consider other macro issues as well, the declining inflation rate, a slowing economy, and  questions over the pace of Fed interest rate declines.   We also consider the high valuations of stocks connected to AI and reflect on whether the recent pullback will continue.

We advocate for maintaining a steady investment course as we finish out the year. 

Straight Talk for All - Nonsense for None


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Chapters

• 0:00 Market Outlook and Election Impact
• 12:59 Election and Market Analysis

Transcript

Clem Miller: 0:24

back in October.

Steve Davenport: 0:26

Welcome everyone to Skeptic's Guide to Investing. I'm Steve Davenport and I'm here with Glenn Miller, and today we're going to talk about what to expect for the rest of 2024. This year has been some ups and some downs and some all-arounds, but we are looking at the rest of the year saying we're not sure how we're going to go from here, and I think that when we look at this issue of a six-month time horizon, we realize it's really a very short time and you shouldn't make too many decisions based on a six-month time horizon. But there are some things in this fall season and winter that are going to be significant for portfolios, and the most significant, I'd say, would be the presidential election and the House and Senate races, because I don't think one is as significant without the other. And I think that as we go through the fall and winter, we're also continuing to follow issues of geopolitics and issues with inflation and issues with the Fed, and I believe that we are going to see markets probably react with some negatives and with some positives.

Steve Davenport: 1:54

But it's very hard for us to sit here and say we don't notice valuations being high and we don't notice there being some opportunities with names that are, I'll call it boring and steady, and I think that sometimes we want to go for the hot new concepts like obesity, drugs and like AI, but we also have to have some you know Coca-Cola and some other names that Estee Lauder in the beauty space that will also deliver for us in ways that we think are beneficial in terms of correlation. So, as we walk out for the rest of the year, Clem, I know you're not going to make a lot of decisions based on six months, but when you look out, what do you see as the most important thing for investors to be focused on as they think about the next six months?

Clem Miller: 3:03

So I think we're probably going to see a continuation of what we've seen in the last few weeks, which is a market that overall has been fairly flat, but with some quite frequent ups and downs in terms of volatility. So, in other words, I don't think we're going to see the kind of big surge. Other words, I don't think we're going to see the kind of big surge that we saw earlier in the year and really late last year as well. I just think it's going to be relatively flat. Now why do I say that? I say that because I think that the expectations that people, that the expectations that people, that investors have had regarding the Fed's actions to reduce rates are already largely priced in. I think that, in fact, you don't really hear as much about that now that the Fed has clearly signaled that it's going to be on a rate reduction trend. So I think that a lot of that is priced in. And now we're seeing the markets sort of yawning at discussion about the Fed. So I don't see much in the way of that kind of macro push. Also, we're seeing a little bit of unsteadiness in the underlying economy itself. Now that obviously helps with the Fed decision. But you know, at the same time, you know, a weaker underlying economy hurts some sectors and and may hurt the overall stock index or keep it from keep it from rising a lot.

Clem Miller: 4:56

Um, and then third, um, you know we've talked a lot in these podcasts about AI, but I would say that I think, uh, ai valuations have gotten a little out of hand and I think that a continued pullback on that will continue to constrain growth on markets. So, yeah, I don't see another surge, I don't see a big fall, but I don't see a big surge. I just see kind of flattish with some day-to-day volatility that I would recommend to folks not to get overly concerned about, because if you've got a big drop like we had in yesterday's market, and we're doing this on a Wednesday and the market dropped a lot on Tuesday, I think every expectation would be that that would get reversed on the following day or the following couple of days. So I'm not too concerned about that.

Clem Miller: 5:59

Now, the other big issue you raised, steve, is the issue of politics and what happens with the election and, you know, with any kind of binomial, at least on the presidential side. Well, with the whole thing right, you've got three binomial decisions here, so you could end up with six different scenarios. Uh, and you know, the biggest of all is the presidency, and, and right now, you know, despite Harris, uh apparently taking a a popular vote lead, and and, uh, it being sort of a tie on the electoral college, um, you know, that's sort of up in the air where that's going to go now. Who's better for investments, harris or Trump?

Steve Davenport: 6:51

That's kind of the issue that I think is in front of people's minds, because I don't think we've really determined, you know, much in terms of recommendations for people to. I mean, I look at it as simply look, interest rates are coming down. Therefore, some of the money we've been making in the safety of treasuries at four or 5% is not going to be there anymore because we're going to get closer to two and a half, three and a half percent and that's almost equal to the rate of inflation. Two and a half, three and a half percent and that's almost equal to the rate of inflation. So the premium to be in that safe place anymore isn't going to be there. So in my mind, it offers an opportunity, especially as a dividend investor like I am, for some of these names that have been forgotten by the AI and the obesity. By the AI and the obesity, I'll say enthusiasm versus bubbles. So the enthusiasm has been there for these spaces and as we start to pull back a little bit, I have to feel like everybody will want the government to have lower interest payments. We know that from our discussion about government debt, to have lower interest payments. We know that from our discussion about government debt Everybody will want to have some stimulus going on in the economy because the higher rates have caused some friction in some areas where people are contracting on their investment decisions and buying decisions. So I think that where we're headed is a more normal place.

Steve Davenport: 8:23

But I think there are some opportunities in the dividend space and there are some opportunities for people to take gains in this environment so that they can potentially avoid higher taxes that might be the product of.

Steve Davenport: 8:41

You know, if the government messes up and lets the tax cuts expire, then we're going to see a government taking a lot more revenue, but it's going to have a contractionary effect on the overall GDP. So I think that there is some future here of a different environment that we've got to look at from a rate perspective and from a governing perspective that I don't think are going to be traumatic because I think there will be some offsets. I don't think that we will see all three go the same way. I think that we're going to see a mix and that mix is what we call the messy middle and I think the government likes as investors, we like to see the government have difficulty, because if they pass too much and they do too much, we tend to see a new environment, which makes it hard for companies who have been operating in the old environment for a while to make adjustments that are going to be good for their company. Do you see opportunity in anything besides dividend stocks, tom?

Clem Miller: 9:53

Well, I don't invest on dividends. Now I've got a number of stocks that have some good dividend growth, but I don't really look for dividend yield. I just don't look for that. As you know, I look for companies that generate good earnings growth, are profitable, highly profitable. I look for low short interest ratios. I look for reasonably attractive valuations using peg ratios. I look at employee satisfaction ratios and lately, because I've been concerned about the overall market, I've tried to constrain the overall beta of my portfolio. So those are the things I look at, not dividends, I would say.

Clem Miller: 10:52

Coming back to what you were talking about with the election, I think right now, if you had and it's a guess, right, it's still kind of early, I know it's after Labor Day, but I think it's still kind of early right to see what's going to happen here. But if I had to guess right now, I think we're going to have Harris win. But the one thing that I think we all need to be concerned about is that if Harris wins, we're going to see Trump not acknowledge that she wins and we're going to see not just legal challenges, but we're also going to see something that could potentially be much worse, and I think that might cause some problems for the overall well, not necessarily the overall economy, but for investments in the short run A lot more volatility.

Steve Davenport: 11:57

Yeah, I think there's I'm not sure about your second point, which I mean I can't tell what compared to January some balance meaning. If Harris wins, we see the Senate maybe stay Republican, and in that way, the way our founding fathers designed this was to help the people with groups that would act as buffers, the people with groups that would act as buffers if one group becomes too large in one direction. The group of senators who are there for a longer time than a two-year term will exhibit a little bit longer-term thinking. So I hope that the way things are will create what we'll call balanced opportunities, create what we'll call balanced opportunities. So I think that when we look at this election I think it's a little bit like looking at the Fed and we can focus, focus, focus on all the different states and which ones are going to be up for grabs and which ones are not, and which ones are currently now going from the likely to the uncertain. You know, I think that all of this, and I think that these polling numbers, I finally noticed that people are getting afraid to predict and they're saying, yes, well, kamala is ahead in the popular vote, but we know that the popular vote doesn't determine the winner Hooray. You know we started to see people actually understand how the election works and I want people to be telling us every day okay, if this state goes from in one direction to a toss-up, you know there's this many electoral college votes who are not, you know, at issue, not, you know at issue. So I think that there's a potential for this election to be like the Fed meetings, where it doesn't really matter. And if it doesn't really matter because there's some give and take between the different groups in Washington, I think as investors, we need to try to do what's best for our clients always. So that would be to stay the course.

Steve Davenport: 14:27

And I think the bigger issues are the overpricing in some of the AI names and in that way, I feel that, looking at some of the opportunities, I'd say that international dividend payers and growers I'm not looking at the dividend payers, I'm looking at growth of the dividends as well as the magnitude could be a better opportunity. And I wonder if the thing that affects people more is that the Fed starts to see lowering rates actually be inflationary and they have trouble with continuing to lower rates to the 1.5% level that they've talked about over the next year and that slowness of declining rates could be what the story becomes, and I think it's going to be an exciting period in America. I think that people have become engaged with Harris and having a first woman president. I think that, as a country, we want to see and I think this is a part of our past. We want to see change that is good for everyone and I hope we see that change.

Steve Davenport: 15:43

And I'm not sure when or how it will impact our portfolios, but I am pretty sure that, looking at the fundamentals and looking at the trends, these multiples are too high for this new concept of AI and therefore we could be cutting it off too early. It could be a 10, 20-year horizon and they need to go up more in order to satisfy that, but I don't think so. I think that what we need is to understand where we're paying too much and how we avoid that so that we can have the best long-term returns. Anything else for the outlook for the next six? Clem?

Clem Miller: 16:31

No, I think that just about covers it. Obviously, it's pretty hard to look at the future. So, obviously it's pretty hard to look at the future. You made an interesting point. I just would point out that I would reinforce. I hadn't thought about it before.

Clem Miller: 16:45

Now the Fed focus is going to shift from when are they going to reduce now to how fast are they going to reduce and when are they going to stop reducing. And I think that's going to be a new focus and it's going to be the new margin on which Fed-oriented investors are going to be making decisions. So that's a very interesting point and, if I wasn't clear earlier, I agree with you on the benefits of divided government. I think that's a very good thing. I do think I mentioned, of course, the risk of potential violence, violence, and you know I would say that that risk is less than it was in January, on January 6, 2021. It's less because you see a lot of potentially violent people who now fear being arrested and convicted, and so I think that's, you know, that's a lot less, but I think there are still folks out there who you know, who would be convinced to show up to something.

Steve Davenport: 18:09

I mean, we'll see what happens. I'm being idealistic. Maybe, clement, you're being more realistic than me but I'm just skeptical that the response was pretty harsh in terms of people being convicted and people, and I feel somewhat like there is a greater focus on the different electoral policies. I would love to see us get to a better place where the electoral differences between states were neutralized in some way. I don't think it's healthy for us to have winner-take-all versus. You know, representative districts and every state is different and every state does it. They're counting differently. I love to give states power, but I'm not sure this power on national elections is making the process better and I would love to see a more consistent process Again, an idealistic view that probably not going to get addressed in the next 20 years, but if we don't talk about them, I don't think we have much chance of getting them done. If we don't talk about them, I don't think we have much chance of getting them done. So thanks for listening and we look forward to talking to you again soon. Thank you.