By Tim Courtney, Chief Investment Officer
Amid the final stretch of 2024, three key factors remain at the center of our attention: Gross Domestic Product (GDP) growth and broader economic data, U.S. fiscal discipline and market concentration. These were the same focal points we discussed back in July, but with new developments over the last weeks and months, it is worth revisiting.
GDP Growth and Economic Data: Throughout 2024, it’s been our view that the economy is slowing, and that view continues to hold. As is usually the case in the economy, there are several noisy indicators and contradictory measures — some pointing to strength, while others are showing signs of weakness.
The Federal Reserve (Fed) has been hitting the brakes for quite some time now, starting with interest rate hikes in late 2022 and into 2023. This, combined with a decline in the money supply over the same time period appears to have brought down the inflation fever but with the side effect of slowing growth and hiring.1 There have been large downward revisions of hirings, all within the private sector, with a large percentage of new jobs over the last year being in government, education and healthcare.2
U.S. Fiscal Discipline: When it comes to fiscal discipline, not much has changed since last quarter. It remains a persistent concern, with the U.S. government now spending more than $1 trillion annually just to service its debt.3 Thankfully, the U.S. continues to benefit from the strength of the dollar and the market’s willingness to demand dollars and lend to the U.S. Still, the cost of this borrowing is rising.
We also have a presidential election around the corner and are going to see whether we’ll end up with a unified or split government. Historically, a split government — where different parties control the White House and Congress — has led to policy gridlock, which the market often views as a positive. We will be looking for guidance on the fate of the Tax Cuts and Jobs Act of 2017, set to expire in 2025,4 and government spending.
Market Concentration: One of the defining characteristics of the market over the last 18 months has been the dominance of a handful of mega-cap stocks, particularly in the AI space. Companies like Microsoft, Nvidia and Apple have seen outsized gains.5 This has created a concentrated market that is overly reliant on a few names. The excitement around AI has companies investing heavily in order to keep up with competitors, but we are still waiting for implementation and promised results. In Q4, we’ll be watching closely to see if AI investments begin to deliver.
It's also worth noting that markets outside the U.S. have performed well. Since March 2020, earnings growth in Europe have equaled that in the U.S. (7.5% annually), though prices in the the U.S. have significantly outpaced those in Europe (130% increase compared to 80%).6
We will continue to monitor these key factors as we look ahead to the rest of the year. As always, diversification is critical to navigating whatever challenges and opportunities lie ahead. If you have any questions about your portfolio or the broader market, don’t hesitate to reach out to your Exencial advisor.
Sources:
PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RETURNS. Information and opinions provided herein reflect the views of the author as of the publication date of this article. Such views and opinions are subject to change at any point and without notice. Some of the information provided herein was obtained from third-party sources believed to be reliable but such information is not guaranteed to be accurate. In addition, the links provided within are for convenience only and the provision of the links does not imply any sponsorship, endorsement, or approval of any of the content. We do not guarantee the content or its accuracy and completeness. The content is being provided for informational purposes only, and nothing within is, or is intended to constitute, investment, tax, or legal advice or a recommendation to buy or sell any types of securities or investments. The author has not taken into account the investment objectives, financial situation, or particular needs of any individual investor. Any forward-looking statements or forecasts are based on assumptions only, and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Any assumptions and projections displayed are estimates, hypothetical in nature, and meant to serve solely as a guideline. No investment decision should be made based solely on any information provided herein and the author is not responsible for the consequences of any decisions or actions taken as a result of information provided in this book. There is a risk of loss from an investment in securities, including the risk of total loss of principal, which an investor will need to be prepared to bear. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular investor’s financial situation or risk tolerance. Exencial Wealth Advisors, LLC (“EWA”) is an investment adviser registered with the Securities & Exchange Commission (SEC). However, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. EWA may only transact business in those states in which it is registered, notice filed, or qualifies for an exemption or exclusion from registration or notice filing requirements. Complete information about our services and fees is contained in our Form ADV Part 2A (Disclosure Brochure), a copy of which can be obtained at www.adviserinfo.sec.gov or by calling us at 888-478-1971.