2024: Finding Calm in the Chaos
Who Will Win?
Earlier this year we hosted our annual kickoff breakfast discussing the economy, the financial markets, and a host of other topics. Afterwards I issued a recap and today I will provide an update and our strategy going forward.
The headline should read: U.S. economy continues to grow at a good pace; however, inflation continues to be stubborn. The financial experts (whom we dubbed the gang that couldn’t shoot straight) began 2024 predicting 5-6 interest rate cuts. Since then, the Federal Reserve announced there would be no cuts until the inflation data improves. So effectively we are in a holding period, waiting on higher rates to slow the sectors driving inflation, including wages, food prices and housing.
The financial markets took their cue that rates would be lowered, and stocks reached all-time highs. Interest rates, however, tend to follow economic data, not predictions and have moved higher as “hot” inflation reports have dominated the news.
The bottom line…stocks tend to show patterns influenced by investors greed or fear, while bond investors stay rooted in the current reality, all of which causes volatility. Are stock or bond investors right and which will win in the end? Let’s look at a couple of forces that stock investors and bond investors are watching.
Stock investors are looking for a new explosion of growth coming from the expansion of Artificial Intelligence…known as AI. AI has enormous potential for every business in the nation and we have begun to implement it on our work. It truly can be a game changer and bring substantial change in every aspect of our lives.
Bond investors look at a different reality…a nation with $34 trillion in debt, continued record annual budget deficits, Federal program spending designed to stimulate, and an inverted yield curve in rates. They know an inverted yield curve has predicted a recession in every instance in modern history with a corresponding bear market drop in stocks.
With this as a backdrop, what is our strategy? This disparity in the financial markets calls for diversification and a tilt towards caution. Typically, dividend paying stocks don’t get caught up in hype, these companies focus on delivering continued results which is why we like them. The inverted yield curve means we can use institutional money markets and short-term government backed or agency bonds for higher interest yields for diversification and safety.
What is the right mix in our management style? We believe in a combination of old school analysis and modern use of technical analysis and artificial intelligence. In short, it is human intelligence combined with machine learning.
These are interesting times…a mixture of excitement over new technologies mixed with genuine fear due to decades of Federal debt and mismanagement. Who wins, stock or bond investors? While we don’t know for sure our goal is to grow your wealth at a reasonable rate while protecting your wealth in case of sudden financial storms.
Thank you for your continued support and business. Please feel free to share this with anyone you know who needs to see it. Let me know if you have any questions or comments, they are all appreciated.
Have a blessed day!
