Notable Trends Entering Year End: 4th Quarter Commentary

• The U.S. Stock Market has been roaring this year, up more than 20% year to date.

• The Federal Reserve has kicked off a rate-cut cycle with a half a percent cut in September. The market is expecting another rate cut in November and more rate cuts in 2025.

• China went through an aggressive policy shift to jump start their economy and markets. The Chinese stock market has been one of the worst performing post-COVID. These policy changes included a rate cut, stimulus, and removing restrictions and regulations.

The stock market has performed well so far this year, and with an upcoming election and global uncertainty, people are wondering what will happen next. Many tend to believe that gravity will soon take hold and bring about a big correction. We think it is best to be careful about letting imaginations run wild, and instead focus on what we are seeing rather than what we are thinking.

A good portion of the rally earlier this year was celebrating the decline of inflation and chants of a “soft landing” where the Federal Reserve successfully stopped inflation without destroying the economy.  At the beginning of last quarter, we received some economic data that pointed to a slowdown. The market got spooked, anticipating a “hard landing”, where the economy would suffer from the fight against inflation. Concerns grew about a possible recession.  Recently, that data has improved, and we are back to talking about a soft landing… if you are feeling manic from the back and forth, we are with you!  But it is typical for emotions to bounce between euphoria and despair in the middle of a market cycle.  Just like the show Game of Thrones, things tend to get weird and complicated in the middle with a lot of head fakes.

Three big positives that investors should be thinking about:  

• In case you missed it, China made a large announcement this week. They cut short-term interest rates, announced a planned two trillion-yuan stimulus (~$285 billion US dollars), reduced the reserve requirement for banks, lifted real estate restrictions, and talked about implementing fiscal measures to focus on consumers.  It seems the Chinese leadership recognizes there is a problem and are serious about turning things around. Some pundits have called this “the bazooka approach”, or you might call it “kitchen sink stimulus.” Either way, when one of the largest economies in the world goes all in on growth, it is an important piece of news that I would not ignore.
• The Federal Reserve also had a big announcement this month when they cut interest rates by 50 basis points (bps). While the market fully predicted an interest rate cut, we weren’t sure if they would cut 25 bps or 50 bps.  The fact that they chose 50 bps has been interpreted as an attempt to get interest rates back to neutral faster than some had anticipated. It also shows that they are not as concerned with inflation, and more focused on growth. Either way, we have entered a rate-cutting cycle and there is no recession or major event to which the Fed is reacting.  The market has reacted very favorably in the past when they cut for stimulus reasons and not to cure a crisis.
• The election is nearing an end (thank goodness), we only have a little more than a month to go. We have been saying for a while that the market tends to like closure on the issue and is less concerned with the results. Once we know the outcome, investment managers will feel a little more confident deploying money. They have more conviction in the narrative and move forward accordingly.

Interest Rates are Coming Down:

One of the negative consequences of the interest rate-cutting cycle is that you will no longer get 5% on Treasury Bills, CDs, and savings accounts.  As interest rates go down, those options will be less appealing.  So, what happens to the mountain of cash sitting in savings, CDs, and Treasuries?  They tend to find a new home, and that new home tends to be stocks, bonds, and real estate.  

What you will see unfold over the next 12 months is going to be the adult commerce version of musical chairs.  As interest rates fall, people will jump out to other assets, and as those assets rise, people will feel more inclined to jump out of cash.  This has the potential to become a vicious cycle to the upside and if you ask me, the recipe is just right to create a bubble in the future (declining interest rates, stimulative efforts, and just a pinch of A.I. euphoria).  

If you are one of those people sitting on a lot of cash and wondering what to do about it, the question I would ask is how you would feel in the likely three outcomes. One outcome is the market keeps going, never looks back and in two years is hitting fresh highs day after day.  Second, is that the market turns course right here, drops by 20 to 30%, before rebounding and moving on at a more muted pace.  Or third, is the market just keeps trudging along and going up, and you either chose to hop on now or waited a little longer.

The point of that little exercise is to highlight the concept: “think about what can go wrong, but then spend EQUAL time thinking about what can go right!”.  That is the problem most people run into; they only see the risk and don’t jump on opportunities when they present themselves.  That, or they wait for perfect conditions where everything lines up and there is little to no risk present.  Of course, we have the other side of the pendulum where people will spend no time thinking about the risks and only think about how rich a particular investment will make them.  They too should spend time thinking about the other side.  The key word here is equal; spend the same time on the good outcome as you do on the bad outcome.  This works for life, not just investments.  Give it a try, let me know how it works out for you!

Jordan Kaufman

Chief Investment Officer

Green Ridge Wealth Planning

Green Ridge Wealth Planning, LLC is a registered investment adviser. The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment / tax advice. The investment / tax strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment / tax strategy for his or her own particular situation before making any investment decision. You are responsible for consulting your own investment and/or tax advisor as to the consequences associated with any investment.

The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Any opinions, projections, or forward-looking statements expressed herein are solely those of AUTHOR, may differ from the views or opinions expressed by other areas of Green Ridge Wealth Planning, LLC, and are only for general informational purposes as of the date indicated.