History and 2024

2024 already feels like a unique year to be an investor.

There are two ongoing wars with simmering geopolitical tensions, which threaten deeper U.S. involvement. The Federal Reserve appears poised to cut interest rates in 2024, but the timeline is far from certain. And perhaps most obviously, there are critical elections happening across the developed world, the most consequential of which is the U.S. presidential election.

In thinking through all of these various factors affecting the global economy and markets, it is often useful for investors to look back on history. The past doesn’t predict the future, of course. But history can serve to remind investors of what the economy and markets are capable of overcoming, and it can help us identify patterns useful for assigning probabilities.

Let’s start with geopolitics. The breakout of new crises and regional conflicts tends to hurt sentiment, create short-term uncertainty, and drive volatility. But in my view, we’re likely past the uncertainty phase with the Israel-Hamas war and the Russia-Ukraine war—markets have had plenty of time to price in each war’s likely effect on global economic output.

To be fair, very recent escalations could easily change this calculus if U.S.-led retaliatory strikes on Iran-backed militias expand into something much bigger. This will be something to watch closely in the weeks.

In terms of Fed policy, I think there’s too much emphasis being placed on predictions about rate cuts in 2024. Investors are too focused on when and how many times the Fed will cut rates in the new year, grossly underappreciating the most important takeaway of all: that the Fed is poised to cut rates during an economic expansion. Historically, that’s quite rare.

In the past 50+ years, there have only been five instances when the Fed engaged in rate cuts during an economic expansion. In three of these instances, the Fed cut rates by 75 basis points, which aligns with current projections moving the benchmark fed funds rate from 5% - 5.25% down to 4.25% - 4.5%. In every cycle when the Fed cut rates during an economic expansion, the S&P 500 delivered positive returns—and often very strong returns.

Finally, there’s the election year. The primary contests are ongoing, but if the U.S. gets a Biden-Trump rematch in the general election, it will be the first time since 1892 that the two parties’ candidates have already been president. That last time was Cleveland versus Harrison.

This is an interesting fact, sure. But in my view, it’s also a very important insight for markets. It means there’s already a reasonably good understanding of policy positions and proposals from each candidate, which could theoretically equate to fewer uncertainties about taxes, property rights, and the business environment no matter who wins. Fewer uncertainties are a good thing.

Historically, markets have followed similar patterns during election years, with volatility in the runup to the general and a ‘relief rally’ once the contest is decided. It’s worth noting, too, that in both years when Trump (2016) and Biden (2020) were elected, stocks delivered above-average returns. I think that’s a testament to the fact that stock market performance is a lot less about the candidates and a lot more about the economic and earnings backdrop.

Bottom Line for Investors

It’s only February, and it feels like there’s quite a bit of concerning information out there to process. Geopolitics is center stage, but the possibility of another contentious U.S. presidential election and uncertain timing of interest rate cuts are also likely to weigh on investor sentiment.

History tells us the economy and markets can absorb these challenges in the long term.

As always, please don't hesitate to call or email with any questions.

Our Best Always,


Robert O'Braitis
Chief Investment Strategist

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