Economic Pulse: What’s Driving Markets in 2024?

It’s hard to believe that we are more than halfway through 2024. With six months in the books, it has been quite an eventful year already. Stock markets are at all-time highs, inflation is showing signs of slowing, giving the Federal Reserve reason to consider a rate cut, and like it or not, US politics are in full swing. Similar to last year, much of 2024’s equity market performance has been led by Technology. And with the US economy on solid footing, we believe that any market swings for the remainder of the year will be headline-driven. Between Fed Chairman Jay Powell and the “will they or won’t they” interest rate cut decision, and former President Trump and President Biden’s “politics and policies,” we will have plenty of headlines from which to choose.

The Technology sector continues to dominate the equity markets, driving substantial gains and pushing stock indices to record highs. Major tech companies have reported impressive earnings, fueled by ongoing innovation, increased consumer demand, and the widespread adoption of new technologies such as AI and quantum computing. As remote work and digital transformation trends persist, the technology sector is likely to maintain its leadership position.

Inflation, which had been a significant concern throughout 2023, is now showing signs of deceleration. This has led to speculation that the Federal Reserve might consider a rate cut in the coming months. Fed Chairman Jay Powell has indicated that the central bank will remain data-driven, closely monitoring economic indicators before making any decisions. A potential rate cut could provide further impetus to the markets, particularly benefiting interest-sensitive sectors such as real estate and consumer discretionary.

The political landscape in the US remains highly charged, with the upcoming elections and ongoing policy debates creating a dynamic environment for investors. The contrasting economic policies of former President Trump and President Biden are under intense scrutiny, and their potential impact on markets cannot be underestimated. Key issues such as tax reforms, regulatory changes, and international trade agreements are likely to influence market sentiment.

We expect the technology sector to continue outperforming other sectors. Companies involved in cybersecurity, semiconductor manufacturing, and artificial intelligence are particularly well-positioned to benefit from ongoing trends.

If inflation continues to slow, the Federal Reserve may opt for a rate cut to support economic growth. This move could provide a boost to equity markets, particularly benefiting sectors that have been sensitive to higher interest rates.

As the US heads into the election season, political developments will play a crucial role in driving market movements. Investors should stay informed about policy proposals and legislative changes that could impact various sectors.

A rate cut by the Federal Reserve involves lowering the federal funds rate, which is the interest rate at which banks lend to each other overnight. This reduction can lead to lower borrowing costs for consumers and businesses, potentially stimulating economic activity. For investors, a rate cut often results in higher stock prices, particularly in sectors that benefit from lower interest rates. However, it is important to consider the broader economic context and potential long-term implications of such a move.

As we navigate the latter half of 2024, staying informed and adaptable will be crucial for investors. The interplay between inflation trends, Federal Reserve decisions, and political developments will shape market dynamics. We remain optimistic about the opportunities ahead, particularly in the technology sector, and encourage our clients to stay engaged with their investment strategies.

If you have any questions or would like to discuss your portfolio, please don’t hesitate to reach out to our team.