October 7, 2024
Hard to believe we're beginning the second week of October, but here we are! The days are getting shorter (and colder) and we’re marching toward the end of another year. It’s been an eventful third quarter of 2024 and on the closing day of September, both the S&P 500 and Dow Jones Industrial Average closed at all-time highs.
We’ve much to discuss in this newsletter, including the impact of the Presidential election on market returns and action items to keep an eye on if you have investments in an IRA, but first – a word on interest rates and the Fed’s decision to cut rates in mid-September.
Interest Rates
For the first time in a while we’re writing about an interest rate cut in one of these newsletters. The Fed announced an interest rate cut of half a percent in mid-September, bringing to an end a period of higher interest rates that hadn’t been seen in over a decade. Beginning in March 2022 and continuing through July 2023, the Fed hiked rates 11 times to combat high inflation in the United States. Rates then held steady for over a year before September’s rate cut. What does it mean for you? Borrowers can expect some relief. Mortgage rates, auto loans, credit card rates, and other types of loans will all become cheaper as rates adjust. The big area of interest is the housing market which has seen home values continue to rise while buyers sat on the sidelines waiting for mortgage rates to come down.
The rate cut was certainly endorsed by the stock market, with the major indices jumping significantly the day after the news. The S&P jumped 1.7% the day after the rate cuts, with the Dow soaring 522 points, or 1.3%, and the Nasdaq composite leading all indices with a gain of 2.5%. In general, lower rates tend to be a tailwind for the stock market, and that was reflected in the reaction.
As to the “soft landing” you may have heard of, referring to the Fed’s ability to bring inflation under control without sending us into a recession – so far, so good. The final word on this hasn’t been written, but the Fed’s work thus far could be compared to an airplane in flight. The plane hasn’t yet landed, but the descent has begun, and the landing gear is down.
A word (well, a few) on the Presidential Election
We should keep in mind a certain term often used in psychology here: Projecting. It’s essentially taking our feelings about a certain topic or subject and projecting them out onto other areas of our lives. You may have very strong feelings about Donald Trump or Kamala Harris. Or you may just be tired of the whole thing! Either way, it’s easy to think that because we don’t like one candidate very much, that if they win, the world’s coming to an end…or that the stock market and economy will suffer. Consider some facts:
- - Since 1928 we’ve had 24 presidential elections. Markets have had positive returns in 20 of those 24 election years, a success rate of 83%. On average, markets are positive 3 out of every 4 years, a 75% rate. Presidential election years tend to be slightly more favorable for market returns than we might think.
- Using large-cap stock index returns going back to when they were measured in 1926, the average return of the S&P 500 and comparable indexes is around 10.3% on a yearly basis. The average return in years with presidential elections is slightly higher, with an average return of 11.6%. Interesting!
- Party control of the White House isn’t nearly as important for market returns as having a split in control between the White House and Congress is.
- Democrat President with the House and Senate divided: 15.7% average S&P 500 return
- Republican President with House and Senate divided: 12.2% average return
IRA Required Minimum Distributions
If subject to a Required Minimum Distribution, or “RMD” from your IRA you’ve received notice by now that your distribution must be completed by December 31, 2024. We will be reaching out to clients who have not satisfied their Required Minimum Distribution to ensure completion of RMDs well in advance of December 31st.
Making charitable donations? If required to take distributions from your IRA, you can potentially reduce your tax liability by making charitable donations directly to 501(c)(3) organizations from your IRA. These donations count towards satisfying your required distribution amounts, but are not taxed, potentially reducing your tax liability. If you’d like to discuss this topic in greater detail, please let us know!
We go deeper into the data on the Wade Into Wealth episode linked below!
IRA Required Minimum Distributions
If subject to a Required Minimum Distribution, or “RMD” from your IRA you’ve received notice by now that your distribution must be completed by December 31, 2024. We will be reaching out to clients who have not satisfied their Required Minimum Distribution to ensure completion of RMDs well in advance of December 31st.
Making charitable donations? If required to take distributions from your IRA, you can potentially reduce your tax liability by making charitable donations directly to 501(c)(3) organizations from your IRA. These donations count towards satisfying your required distribution amounts, but are not taxed, potentially reducing your tax liability. If you’d like to discuss this topic in greater detail, please let us know!
The following episodes of Wade Into Wealth are timely and either expand on newsletter topics discussed above, or we thought would be of interest to spend a few moments listening to.
- Presidential Elections and the Stock Market – How much does the President really impact the stock market? The answer’s likely different than you think.
- Fed Slashes Interest Rates by Half a Percent – How the Fed’s decision to cut interest rates is likely to impact you and your investments.
- Monday’s Market Drop – End of the World or Business as Usual? – When the stock market drops more than 2% in a day, is it cause for concern?
- Utilities: An Unlikely Market Mover – Why an investment sector best known for being boring is having a marquee year.
E-Mail: cwade@brightonsecurities.com
Direct: 585.340.2203