As Q3 2024 comes to a close and Q4 2024 begins, all eyes are centered on the election. 2024 is a presidential election year and so far it has proved to be unpredictable. July began with monumental events as President Biden dropped out of the race to be replaced by Vice President Harris for the Democrats and former President Trump survived an attempted assassination. Given those two events alone it wouldn’t be surprising if I told you the market was struggling, however, that is not the case at all. In fact, markets are doing extremely well.
Through the end of Q3 2024 the S&P 500 was up about 22%, with the NASDAQ being up a bit more and the Dow lagging in the mid-teens. The All Country World Index-Ex US was up about 14% and the US Aggregate Bond Index was up about 4.5%. Those are solid returns across the board despite some of the major news headlines. The natural question for most investors becomes, “How or why can the markets be doing so well in the face of such news?”
One such answer to that question might actually be that the outcome of the elections may look very similar to today, resulting in a continued divided government. The presidency at this moment looks like a toss up between Vice President Harris and former President Trump. The seats up for grabs in the Senate actually favor Republicans in this cycle, and with Joe Manchin retiring in WV, he will likely be replaced by a Republican giving Republicans a predicted lead. The House, however, is less favorable for Republicans. Currently, Republicans are predicted to have a slight lead over Democrats with 208 seats to 206, with 21 seats being truly a toss-up, though momentum is leaning towards the Democrats. Regardless, the likelihood of either party having a unified government seems low at this point which means it will be status quo for most issues.
Another possible reason for the markets performing well is that the economics are outweighing the election concerns. Inflation, after reaching a peak of 9.1% in the Summer of 2022, is nearing the Federal Reserve’s target of 2.0%. The most recent reading through the end of September was for 2.5%. This continuing trend of disinflation is allowing the Federal Reserve to lower interest rates, which they did in September. Additionally, the economy appears to be performing well as GDP is growing around 3% annually. The combination of disinflation, lower interest rates, and economic growth is very supportive of strong markets.
2024 has been a surprising year in the markets. After 2023’s rally, many were expecting a more subdued market environment for returns, but heightened volatility. In many ways, it has been the exact opposite. Returns have been strong and volatility has been light in comparison to what expectations have been. As we head for the election and the end to the year, markets and the economy appear well positioned. That isn’t to say that something can’t go wrong- something can at any time, however, it seems like for right now, the backdrop is supportive for investors.