Investors are facing a number of concerns in the current market environment, including the potential for falling interest rates, the upcoming U.S. elections, and the increasing presence of artificial intelligence. How should investors navigate these events?
Bankrate’s Market Mavens survey sought the opinions of experts on some key questions for investors in 2024:
- How might investors and savers react to declining yields or returns on savings once the Fed starts cutting rates?
- With the U.S. election on the horizon, what is the best approach for investors to take in the face of uncertainty and various potential outcomes?
- What is the outlook on the market’s enthusiasm for tech stocks and AI, and how should long-term investors approach this trend?
Here’s what the survey respondents had to say about how investors should address these issues.
Forecasts and analysis:
This article is part of a series discussing the findings of Bankrate’s Second-Quarter 2024 Market Mavens Survey:
- Survey: Stocks expected to gain 4% over the next year
- Survey: Market experts predict 10-year Treasury yield to be under 4% a year from now
- Survey: Strategies for navigating falling interest rates, elections, and AI, according to investment professionals
How experts suggest responding to falling interest rates
The Federal Reserve has signaled its intention to lower interest rates once inflation shows more consistent movement towards its 2 percent target. With inflation trending lower, most market observers anticipate rate cuts from the Fed in the near future.
When asked about the potential opportunities and risks for investors as rates decline, Patrick J. O’Hare, chief market analyst at Briefing.com, emphasized the importance of understanding the reasons behind the rate cuts. He suggested that if the rate cuts are driven by inflation nearing the target while economic growth remains strong, there may be opportunities in value and small-cap stocks. On the other hand, if rate cuts are due to economic weakness or a recession, investors may seek safety in Treasuries and cash.
Dec Mullarkey, managing director at SLC Management, highlighted the positive impact of rate cuts on equities, particularly small-cap stocks with floating rate debt. He noted that as the cost of debt decreases, earnings can improve as long as economic growth continues.
Brad McMillan, chief investment officer at Commonwealth Financial Network, cautioned that the pace of rate cuts could influence market sentiment. If the Fed is perceived as moving too slowly, investors may become overly negative.
How should investors navigate U.S. election uncertainty?
The upcoming presidential election poses significant uncertainty for investors, with potential shifts in Congressional control also on the horizon. Experts were asked how investors should approach this uncertainty and the range of possible outcomes.
While volatility tends to increase during election cycles, Mullarkey suggested that markets have historically performed well under both Democratic and Republican administrations. He recommended maintaining a long-term investment strategy focused on the earnings potential of companies rather than political outcomes.
Sam Stovall, chief investment strategist at CFRA Research, pointed out that the S&P 500 has historically delivered the highest average returns during split Congresses, with a Democrat president and split Congress yielding the greatest returns.
Other analysts emphasized the importance of focusing on economic fundamentals rather than political events when making investment decisions. Hugh Johnson, chief economist at Hugh Johnson Economics, and Chuck Carlson, CEO of Horizon Investment Services, both advised investors to consider interest rates, the economy, and corporate earnings in their investment planning.
Some analysts highlighted the potential impact of government spending, particularly with the expiration of the 2017 Tax Cuts and Jobs Act in 2025. O’Hare noted that the future of tax policy will depend on the composition of Congress, while Kim Forrest, chief investment officer at Bokeh Capital Partners, suggested that the election outcome could influence tax and regulatory policies.
Is the dominance of tech stocks a cause for concern?
Technology stocks, particularly those related to artificial intelligence, have been driving major market indexes higher in recent years. Analysts were asked about the enthusiasm surrounding tech stocks and AI and whether investors should be worried about their dominance.
The experts had a positive outlook on the potential of AI technology, but expressed some uncertainty regarding its current valuation and riskiness. Charles Lieberman from Advisors Capital Management humorously pointed out the difficulty in predicting the future impact of AI, while McMillan emphasized the importance of understanding the return on investment in AI to determine its future prospects.
Investing in AI offers opportunities beyond just AI and tech stocks, with sectors like technology, communication services, energy, materials, and industrials showing promise in benefiting from the AI buildout. According to Sameer Samana from Wells Fargo Investment Institute, investors should consider including AI and technology in their portfolios for long-term growth potential.
The Bankrate survey conducted in the second quarter of 2024 gathered insights from various stock market professionals, including experts like Dec Mullarkey, Patrick J. O’Hare, Sam Stovall, Brad McMillan, Chuck Carlson, Michael K. Farr, Charles Lieberman, Kim Forrest, and Hugh Johnson.
Overall, while the future of AI technology appears bright, investors with long-term horizons should carefully evaluate the risks and potential returns before making investment decisions. It is recommended that investors conduct their own research and consider past performance as only one factor in predicting future price appreciation.