Conservatory Chat

2024 3rd Quarter Investment Report


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The rarest of economic events is the so-called “soft landing,” where a robust economy (and long-time bullish markets) are gradually cooled without triggering a recession and bear market. We might be witnessing such a phenomenon today, though nobody will quite say we're out of the woods yet.

As has been the case for most of 2024, the U.S. markets seem to be testing new highs every week or so, in a smooth ride with little volatility. That is not normal, but there aren't any clear signs of a storm on the horizon. Manufacturing activity continues to be strong, construction spending is relatively robust, and the unemployment rate, which seemed to be rising, has leveled off at a level that most previous economies would consider extremely bullish. Hourly wages for American workers continue to rise faster than inflation, currently at a 3.8% annual rate, compared with 2.5% inflation. That aforementioned inflation rate is very close to the Federal Reserve's 2% target, which might mean that the Fed has room to lower rates going into 2025.

Meanwhile, GDP growth is running at 3.4%, personal income and disposable personal income among consumers keeps rising (albeit incrementally) and consumption (a key component of economic growth) remains strong. As a direct result, corporate profits have continued to rise.

The chief worry now is oil supply disruptions as the conflict in the Middle East heats up. If the conflict escalates, the world will experience higher oil prices. The impact would be moderated in the U.S., which is energy-independent currently and exports fossil fuels, but global supply and demand have rippled into American gas stations (and production costs) in the past. Of course, there are bigger worries when two major conflicts seem to be escalating, especially when they involve countries with nuclear capabilities.  

Oh, and you might have noticed that there's a presidential election going on in the U.S. The interesting thing about elections is that there's never any clear connection between who wins in November and what the markets will do in the immediate aftermath. Policies can affect the economy, but until we know what those policies will be, it's hard to judge what kind of impact to expect.

It's helpful to remember that the markets have continued to rise through both parties temporarily occupying the White House and holding majorities in Congress. There's no good reason to imagine that this long-term trend will suddenly change, though history does tell us to expect more volatility in the future (up and down) than we've experienced in the recent past. It's always helpful to have your seatbelt buckled...

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Conservatory ChatBy Jay Hutchins