As we head into the final few months of 2024, many investors are feeling the pressure of uncertainty. The U.S. presidential election is entering the final leg of the race and interest rates will likely be coming down for the first time in years. Just these events alone can influence markets in unpredictable ways.

J.P. Morgan Wealth Management held a webcast in September to address the current climate. Rob Ferrari, Head of Investment Solutions and Advice at J.P. Morgan Wealth Management, spoke with Elyse Ausenbaugh, Head of Investment Strategy at J.P. Morgan Wealth Management, about recent market developments and how they expect things to play out.

“A few months ago, we released our mid-year investments outlook entitled ‘Strong Economy in a Fragile World,’” Ferrari said. “Now, as we head into the final few months of the year, we thought it would be a great idea to provide an update and specifically focus on how that economic and market landscape has evolved throughout the summer, as well as highlight key considerations that investors should be thinking about as they move throughout the rest of the year and into 2025.”

A look back: What happened over the past year

While it may not have always felt like it, 2024 has been a strong year for investors.

“The stock market has generated a total return of around 30% since last September,” Ausenbaugh said. “You've got core bond returns which are up in the high single digits, and that means that diversified stock/bond benchmarks are also up in the neighborhood of 15% to 20%, depending on the specific allocation and split between stocks and bonds.”

She continued, “Notably, the summer months of this year really built upon that rally, as investors embraced this ongoing improvement in the inflation backdrop, while we saw … a simultaneous resilience in economic growth and also the outlook for corporate earnings really holding up well.”

The job market

There was a concerning trend this year, which is what Ausenbaugh referred to as a labor market slowdown.

The unemployment rate rose from 3.7% in January to 4.2% in August. Notably, hiring has slowed.

However, there’s also been an increase in small business optimism and overall high profit margins across the economy – both positive signs for prospects of a relatively healthy labor market. “It was really hard to find signs that businesses are … readying to pursue any sort of mass layoffs at scale,” Ausenbaugh said.

Fed rate cuts: What’s happening there?

Huge news for this fall is the 50 basis point rate cut announced at the Fed’s September 18 meeting. J.P. Morgan Wealth Management’s position is that this rate cut, and others that are likely coming, are a good thing.

Ausenbaugh cited three key reasons for the September cut:

1. Inflation was becoming less threatening.
2. There were signs the economy was slowing down.
3. The Fed’s prior policy rate was well within a restrictive range.

As for how much rates will be cut down the line, only time (and the Fed) will tell. But Ausenbaugh said there’s plenty of wiggle room where rates can come down and hopefully not kick inflation back into gear.

She elaborated, ”So the point is that there is plenty of room for rates to start moving lower … before they get back to that level that could potentially risk erasing the progress that's already been made in cooling inflation down.”

Can we get away with no recession?

“Based on the data that we have in hand, I would argue that the wheels are already touching down and so far the landing looks like it's pretty smooth and soft,” Ausenbaugh said.

She pointed to factors such as a solid economy (despite slowed growth), continued strength in consumer spending, positive real wage growth and stable corporate profit margins.

“Bottom line is that the Fed is ready to start cutting interest rates. They have plenty of room to do so, and they have made it clear that their bias is shifting toward staving off weakness in the labor market and the broader economy, as inflation looks less threatening. We expect inflation to continue to remain well-behaved, and those are kind of the ingredients as to why we think a soft landing is in sight.”

Where should investors go from here?

As rates come down, Ausenbaugh expects the economy to continue expanding, just at a slower pace than what we witnessed over the past year. “What we're doing is really encouraging investors to find a prudent balance between managing risks and also seizing opportunity in light of a normalizing economy,” she said.

One of the first considerations investors should make is in their cash positions. Cash yields are likely headed lower, so investors should think about moving cash from something like a high-yield savings account into other vehicles with the potential to lock yields in for longer.

“I think the first place to consider is maybe just high-quality, short-duration bonds so that you can lock in these elevated yields for longer,” Ausenbaugh advised. “You might then consider … looking at longer-duration bonds, particularly municipal bonds if you're a United States taxpayer as a means of not just locking in those yields for longer, but also getting that added benefit of defensiveness in portfolios that can help offset future stock market volatility.”

As for stocks, Ausenbaugh said that while the S&P 500 may not generate the kind of returns we saw over the past year, investors are still advised to focus on the profitable assets in their portfolios and maintain confidence in the potential for future returns. Particular themes that could drive the long-term market include national security and artificial intelligence.

The bottom line: Stay invested

The U.S. election and other geopolitical events can be major sources of concern for investors – especially when coupled with additional concerns about inflation and a slowing economy. However, we believe it's prudent for investors to remain invested. While an election can cause volatility in the short term, looking at a one-, two-year or longer time horizon, it likely won’t have lasting implications on a well-balanced portfolio.

“All in all, we think investors have a lot of options as to what to do with their capital right now,” Ausenbaugh said. “And it's really just a matter of sitting down, reviewing your plan and determining which asset allocation might get you to a place so that you have the confidence of getting invested and staying invested to reap those long-term benefits of things like compounding with market exposure.”

Ferrari added, “Our job is to help our clients develop a financial plan that's thoughtful and specifically tailored to the different aspects of their financial lives, inclusive of their needs, goals, time horizon and more. And our J.P. Morgan specialists and advisors are available and ready to help you on that journey.” 

IMPORTANT INFORMATION

The price of equity securities may rise or fall due to the changes in the broad market or changes in a company's financial condition, sometimes rapidly or unpredictably. Equity securities are subject to "stock market risk" meaning that stock prices in general may decline over short or extended periods of time.​

Bonds are subject to interest rate risk, credit and default risk of the issuer. Bond prices generally fall when interest rates rise.​

Investors should understand the potential tax liabilities surrounding a municipal bond purchase. Certain municipal bonds are federally taxed if the holder is subject to alternative minimum tax. Capital gains, if any, are federally taxable. The investor should note that the income from tax-free municipal bond funds may be subject to state and local taxation and the Alternative Minimum Tax (AMT).​

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