Riding the Road of a Changing Market

Joe Shearrer, is a Vice President and Wealth Advisor at Fervent Wealth Management

 

Growing up, can you remember a time you were in a bicycle wreck?  When I turned five, I received a brand-new bike for my birthday.  The excitement got the best of me as I headed down our gravel driveway and onto the chip-and-seal country road.  I picked up speed as I traveled down the hill toward the low-water bridge near our house.  Before I knew it, I was flying headfirst over my handlebars, and my forehead was filled with an unwelcome meeting with Mr. Chip and Seal (aka the road).  Of course, we didn’t wear helmets back then, and my mother spent that evening picking out the remains of small rocks stuck in my forehead.

I learned that day that while traveling the ups and downs of the road, you always need to look ahead to navigate the terrain so that you can maneuver to avoid hazards.  Recently, clients have asked a common themed question: “Where do you think the market will go for the remainder of 2024?”.  My response is that we don’t have a crystal ball, but we do know that historically, the markets do not like uncertainty.  We feel the remainder of 2024 brings potential uncertainty, and steps should be taken to bolster portfolios against a potentially less friendly market.

The stock market soared to new highs in the first half of the year, driven mainly by the anticipation of lower interest rates and the stronger-than-expected economy.  Looking ahead, future gains will rely heavily on corporate earnings growth.

With earnings season right around the corner and the consensus expectations currently calling for a 9% increase in S&P 500 earnings per share (EPS), I believe estimates have been resilient, and staying disciplined with stocks during the first half of earnings season is critical.  The contribution from mega-cap technology will be big again. Still, we should start to see some contribution from the rest of the index, which will likely come from the financial, energy, utilities, and healthcare sectors, according to LPL Research, FactSet 06/27/24.

While it’s tempting to continue to “ride” these trends, the outlook for the second half of 2024 shows the economy is poised to cool down, while volatility is likely to rise given geopolitical uncertainty and the upcoming presidential election.

So, where do we go from here? As August approaches, I will look for opportunities in the energy, industrials, and communication services sectors while staying disciplined in U.S. large caps with strong growth potential.

What about all that cash taking advantage of the current higher interest rate environment? Now could be a great time to replace some cash holdings with bonds to lock in today’s higher bond yields. Yes, it has been a few difficult years for bonds, but after yields peaked in 2023, bonds returned to offering attractive risk-adjusted returns. Also, keep in mind that rates on cash accounts will decrease when the Fed cuts interest rates.

Much like the excitement of my first ride on my brand-new bicycle, we’ve been riding the trends from late 2023 with surprisingly resilient economic growth and stubborn but decelerating inflation.  The ride could be bumpier as we look toward the second half of 2024.  In this environment, we must do what I didn’t do on that first ride on my new bicycle and successfully navigate the potential uncertainty.

Just think if I had chosen never to ride my bicycle again because of the fear of uncertainty ahead.  I would never have been able to take a mission trip to North Africa and mountain bike from village to village.  We must continue to ride to take advantage of opportunities in the future.  Stay patient and disciplined as you navigate uncertainty while remaining focused on your long-term goals.

As far as I know, I don’t have any negative long-term effects from my bicycle wreck but don’t ask my wife.

Have a blessed week!

Joe

www.FerventWM.com

Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Independent Advisor Alliance (IAA), a registered investment advisor.

IAA and Fervent Wealth Management are separate entities from LPL Financial.