Contact Us
Have a question or need a qualified professional? Fill out the form below and we’ll contact you shortly.
ECONOMIC UPDATE
September 2024 | Monthly Economic Update
Key Takeaways
- The Federal Reserve cut the Fed Funds rate by 0.5% at their September 2024 meeting.
- An interest rate cut signals the environment of unusually high inflation is likely over. This is a good thing for consumers and investors.
- Investors should use this as an opportunity to align their investment portfolios with their long-term goals.
Why Is the Fed Cutting Rates?
The Fed has a dual mandate of promoting low inflation and full employment. In many ways, those two mandates are at odds with one another. The Fed seeks to balance low inflation and full employment by adjusting short-term interest rates. When the Fed raises interest rates (like they did in 2022), demand generally falls, typically leading to lower inflation and higher unemployment. Conversely, when they cut rates, demand generally rises, typically leading to higher inflation and lower unemployment. With the Fed’s long-term inflation target in sight and labor markets still relatively healthy, the Fed cut interest rates in hopes of avoiding a recession in the future.
How Will This Impact Investors?
In previous rate cycles, the Fed has tended to keep interest rates high for too long, causing a recession. This time, the Fed cut interest rates while the labor market is still relatively strong. While there are signs of slowing, that slowing is coming from a very healthy overall level. In our view, cutting interest rates while the labor market is still healthy increases the probability that we will avoid a recession.
More importantly, the start of a rate-cutting cycle is a sign that the period of unusually high inflation is likely over. From a big-picture perspective, this is very good news for both consumers and investors.
What Should Investors Do?
We suggest investors consider three actions:
Ensure their cash allocations are aligned with their long-term investment plans. Recently, the yield environment favored cash over bonds; we expect this to move towards bonds as short-term interest rates fall.
Revisit their asset allocations to ensure they are aligned with their long-term goals. While this economic environment is associated with a higher risk of recession, it has also been associated with healthy returns for stocks and bonds over three- to five-year time horizons.
Get invested and stay invested. With an increased risk of recession and upcoming elections, market volatility is likely. Investors who can stay disciplined could be rewarded with above-average investment returns.
The Monthly Riddle
The more of this there is, the less you see. What is it?
LAST MONTH’S RIDDLE: I speak without a mouth and hear without ears. I have no body, but I come alive with wind. What am I?
ANSWER: An echo.
Tip of The Month
As the year winds down, it’s important to review your financial goals and make adjustments before the final quarter. Staying proactive now can help you stay on track for a strong year-end.
Important Information
This is for informational purposes only, is not a solicitation, and should not be considered investment, legal or tax advice. The information has been drawn from sources believed to be reliable, but its accuracy is not guaranteed, and is subject to change. Investors seeking more information should contact their financial advisor. Financial advisors may seek more information by contacting AssetMark at 800-664-5345.
Investing involves risk, including the possible loss of principal. Past performance does not guarantee future results. Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns. There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio. No investment strategy, such as asset allocation, can guarantee a profit or protect against loss. Actual client results will vary based on investment selection, timing, market conditions, and tax situation.
It is not possible to invest directly in an index. Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly. Index performance assumes the reinvestment of dividends.
Investments in equities, bonds, options, and other securities, whether held individually or through mutual funds and exchange traded funds, can decline significantly in response to adverse market conditions, company-specific events, changes in exchange rates, and domestic, international, economic, and political developments.
Bloomberg® and the referenced Bloomberg Index are service marks of Bloomberg Finance L.P. and its affiliates, (collectively, “Bloomberg”) and are used under license. Bloomberg does not approve or endorse this material, nor guarantees the accuracy or completeness of any information herein. Bloomberg and AssetMark, Inc. are separate and unaffiliated companies.
