Market Update- 12/04/2023

Market Update- 12/04/2023

December 04, 2023

Stocks Move Higher

Market sentiment remained positive as the Fed’s preferred measure of inflation showed ongoing signs of softening inflation pressures, boosting hopes that the Fed may be able to end its rate hikes and consider rate cuts sometime next year. Investors also welcomed news of solid spending in early holiday sales reports.

Inflation Eases

The Personal Consumption Expenditures Price index (PCE)–the Fed’s preferred measure of inflation–was released last week, showing core PCE (excludes energy and food) rose 0.2% in October and 3.5% from a year ago. Both were lower than September’s readings of 0.3% and 3.7%, respectively. Perhaps most notably, core prices rose at a 2.5% annualized rate over the last six months, close to the Fed’s target rate and a big improvement over the previous six-month annualized rate of 4.5% ending April.1

The report also reflected a slowdown in consumer spending, as October’s 0.2% increase was lower than September’s 0.7% gain, a possible indication of the impact of the resumption of student loan repayments, higher prices, and shrinking savings.2

History of Election Years

Markets hate uncertainty, and what’s more uncertain than primary season of an election year? Investing during an election year can be tough on the nerves, and 2024 promises to be no different. Indeed, politics can elicit strong emotions and biases, but investors would be wise to tune out the noise and focus on the long term.

Current economic and political challenges may seem unprecedented but a look at past election cycles shows that controversy and uncertainty have surrounded every campaign. 

But the volatility is often short-lived. After the primaries are over and each party has selected its candidate, markets have tended to return to their normal upward trajectory.

Patient investors who stay the course have often been rewarded. Since 1932, stocks have gained an average of 11.3% in the 12 months following the conclusion of the primaries (using May 31 as a proxy) compared to just 5.8% in similar periods of non-election years.

But keep in mind, these are just averages. Investors shouldn’t try to time an entry point into the market. Instead, a long-term approach can help investors withstand volatility and feel confident that markets have tended to move higher over time, even in election years. As always, past performance does not dictate future results.

Bottomline: Primaryseasontendstobevolatile,butmarkets havebounced backstrongly thereafter.

Footnotes and Sources

1. The Wall Street Journal, November 30, 2023

2. The Wall Street Journal, November 30, 2023