In My Day...
In My Day...
AI, Elections, and Inflation: What to expect in 2024
Amidst an ever-churning news cycle, 2024 is shaping up to be a big year in America. Dave and Ryan give some straight talk about what that might mean for the markets and your portfolio.
David Smyth and Ryan Petrunyak talk about family, finances and fun. Learn more about Family Financial Partners at familyfinancialpartners.com.
Securities offered through The O.N. Equity Sales Company, Member FINRA/SIPC, One Financial Way Cincinnati, Ohio 45242 (513) 794-6794. David Smyth is an Investment Advisor Representative offering Investment Advisory services through O.N. Investment Management Company. Estate planning services provided in conjunction with your licensed legal advisor.
Hi everyone. Welcome back to In My Day with Ryan and Dave. How you doing today, Dave? I'm doing great, Ryan. How are you today? I'm good. I'm good. I'm ready for another episode. Oh, absolutely. Now that we're done with our New Year's resolutions, we can move on to the fun stuff, right? 100%. It's a new year. Let's talk twenty-twenty-four. Alright, let's talk twenty-twenty-four markets a little bit. Okay.'cause we've been getting a lot of questions. From people out there that are concerned about elections, market volatility, all the crazy stuff going on in the world, problems in Europe, problems in Israel. So let's either calm or give people reason for more fear today. How's that sound? I can do that. Alright, so let's just start with the question that I've been getting a lot to start this year.'cause now that we're almost a month in the question I've been getting is. It's an election year, and as every election, this is the biggest election of our lifetime, as the news tells us. Should I be worried? I don't think so. Bottom line, I wouldn't worry about it, but you're right. What you just said earlier, this is the biggest election year. Every election year grows bigger and bigger, not just from the standpoint of two people running against each other, right? Two parties running against each other, in some ways parsing America right down the middle. But the other thing that happens is we have more ad spend every single election cycle than we've ever had. So from the ad spend side, it's actually a really good time for any corporate America company that is capturing eyeballs and selling ads. Absolutely. Outside of, obviously everyone's advertising more, what's another trend that you think could affect the markets because of the election cycle? Yeah. I think that to start out, corporate America, the reason they really do not care who's elected. Yeah. They really don't. As long as it doesn't affect their bottom line. And that's no different than you or I, talking to our neighbor and they say, oh, this happened to me, this happened to me, and you. You feel sympathy for them, but you don't necessarily feel empathy because when you walk back in your garage and shut the door, everything's fine in your home. Yeah, that's how corporate America is with the election. Now, as far as trends, artificial intelligence was a big trend this year. I think it's even gonna be a bigger trend this this year as far as corporate companies actually making money off of it. Not just saying, Hey, we've got ai. We've got chat GPT, we have barred, we have all these different types of AI software or AI chips. What we're starting to see now is we're starting to see companies saying, we actually know how we're going to profit. We know how we can create revenue, significant revenue for our business through artificial intelligence. Yeah. Last year it felt like in a lot of the earnings calls the companies were just talking about. We have it, we're faster to get this part of ai or it was just a race. It didn't really feel like they were monetizing it as much, and that we started to see that shift and that should help a lot of these companies that are doing that. So yeah. Every single employee in corporate America. 50,000 seats are higher right now. Is going to be having, a new AI assistant offered on their desktop. Yeah. And by the time we get to this fall. That 50,000 minimum seats is going to fall to maybe five. Yeah. And the rest of America is gonna get those AI assistants on the desktop. And a lot of people don't even have any idea what they're going to do. And I'd say there's a lot of companies that don't even know exactly how they're gonna use it yet. Yeah. But the idea is that just there's so many just day to day rudimentary tasks that you have to do within any job. And especially on a computer that AI can recognize and say, Hey, would you like me to do that task for you that you always do at this time every day? And you say yeah. Take the reins and run with it. Let me approve it before you hit final. Yeah. It's going to change the way in which people interact on a day to day within their job and the amount of work they can actually take care of. Yeah. It's gonna increase productivity. It goes back to that episode that we had last year in. You haven't seen it, you can go on and watch it. But we had an AI expert on, and one of the questions I asked him, because it's a common, millennial gen Z kind of question, is AI gonna ruin my chances of having a career? Is AI gonna replace me? And I think what you just said perfectly explained his answer when he said, it's not gonna replace you. But it's gonna make you a lot more efficient and it's gonna make you be able to produce twice as more. So you know that, I think that's an interesting trend that we're starting to see, and it's just becoming more and more integrated in our daily lives. Absolutely. Any other big market trends outside of AI that you're looking for this year? The thing is everyone's talking about how the Fed is cutting rates, right? They announced in the end of the year that they were going to be most likely cutting rates three times in twenty-twenty-four. And so with that, people are thinking, okay if the Fed is cutting rates, it must mean that the economy is weak right now. And actually the economic reports that we've seen out in the month of January so far have not shown that they've actually shown that the economy is still fairly strong and we're still battling inflation in certain areas of the economy. So I actually think that's a good thing. And will the average consumer. And when I, every time I go in the grocery store, I don't feel great about my grocery bill. Nobody does. No. I used to go to the, you'd go to the grocery store and you'd spend $40. Now you go to the grocery store and spend $60. Just for a couple items.$60. You have five boys in your house. How? How much is $60 buying you? I'm not doing the primary shopping for the family. You just buy the ice cream. I'm doing the shopping where the Instacart person forgets a few things or says the store's out. So I go to a different competitor to try to find those items that we need to complete the grocery list. Okay, that makes sense. Yeah. But no, it's just the average American does not feel right now like their grocery bill's going down. And the reason is because it's not, yeah. It's still increasing, ice cream. They were just talking about that the other day. Ice cream is still going up, right? Yeah. That's a big thing in the Smith household, right? Yeah. So when you've got ice cream increasing in this latest January CPI report at 2%, right? It just means it's just 15, 20 cents per gallon. But with five boys in the Smith household, that's a, that adds up. That adds up really fast. Yeah. Gallon by gallon. By gallon. The thing is inflation is still there and while it still is lower than it was 18, 24 months ago. It just hasn't gone away. We just has, we just have less of it. So I think inflation is still gonna be a major thing. And, but the good part is I do think the economy is growing so that we're not going to go into some big deeper session. Yeah. And the trade for that. The trade for that is the trade last year for 2022 was those high growth. Technology companies, right? They, everyone knows the names of those that have done very well. Many of them are the phones we use on a daily basis. The the types of watches we have that notify us of all sorts of things, including we need, we haven't gotten our steps for the day, or we need to go to sleep. But at the end of the day, the thought for 2024 is that a lot of those companies that are just general American companies that were getting beaten up on a daily basis. Just because the cost of the widgets were costing so much more money due to inflation. if Inflation does continue to slow and ease over twenty-twenty-four those companies will be able to really profit. Yeah. It's not that they're gonna sell more widgets, if you will, or more cups of coffee or it's just that the cost of doing business will come down and help them. And that at the end of the day, that's what the stock market, that's what the stock market cares about, is. How that corporate company, what their bottom line is, what their profits are. Yeah. Just to add on that, the everything you said I agree with, but the one other sector I think that looks interesting this year is any company, not really a sector, better categorization? Sure. Would just be any company that needs to borrow money because. Going about a year ago, we were anticipating rates would keep going up and up, and there was no end in sight. And any company that needs to borrow money for their day-today, operations, because they're younger, they're smaller, they're not quite profitable yet. That makes the cost of doing business for them so much higher and so much harder for them to become profitable now that the cost of money comes down. When interest rates come down a little bit, it makes it much easier for more of those companies to succeed. So I think that's another trend we could see into this year that you might see some new names have an easier time emerging than they have the last couple years. Back to a time, beginning of Covid kind of that have they had that success? And the market is always, I think a lot of people don't realize this, but the market doesn't really react to what your last earnings report was as we're going into earnings season over the next 6, 7, 8 weeks. Yeah. They don't really care nearly as much as. Like what you did in the fourth quarter. It's what the company is saying about 20, 24 and beyond. Yeah, and so as we go into the bank earnings next week and the financials earnings, we're gonna hear a lot about what they're expecting for 2024 to the point of companies needing to borrow. The market right now is anticipating the Fed is going to cut six times in 2024. The Fed is on record saying that they plan to cut three times. So there's a disconnect there, right? And so I do think that I believe the Fed is saying what they intend to do. I don't think they're lying about that. I think that they will cut. It's just a question that everyone has of, is it only gonna be three times how fast and how much? It's gonna be much. And if they don't cut as fast let's say they only cut two times because inflation is just as a little sticky still and the economy. Doesn't, there's nothing in any kinda economic report that says we really need to cut rates. Then those companies that, that do need to borrow, 2024 may still be a little rough for 'em, but Wall Street may not care about that. Absolutely. Yeah. Wall Street may say, where's the ball bouncing? We're already looking a year ahead and we're looking now at, yeah. Once we get past January as we get into April, now we're starting to think about not 2024. As we go into May and June, we're starting to think about twenty-twenty-five. And so oftentimes those moves in a lot of those types of stocks where they bounce back, they may happen actually six months plus of actually where the good news is. Yeah. Yeah. And similar to what you said with earnings, how the market's always looking six months ahead a year ahead. It's not necessarily concerned with the exact earnings per share of the last quarter. It's more concerned about the next one. It's the same thing with the Fed, like you said, everyone's expecting the fed to cut. So when the Fed comes out and says, Hey, we cut a quarter point, that's not necessarily great news. The great news will be what do they say in their twenty-minute press conference explaining what they're planning to do for twenty-twenty-five, because a hundred percent it's the same exact thing. Percent the market cares about. What have you done for me lately? What are you gonna do for me next? It's not what you did for me last quarter. Next question for you. Yeah. As, as far as to go back to the election for a second. What have we seen historically?'cause a lot of people ask, should I be really worried about the election year? What have we seen historically happen to the market during election years? we did a little research on this and since 19 fifty-two, the average return has been around 7% positive in election years. And when it's reelection years, it's slightly higher than that. So the thought is, a person out there, if they say I'm really concerned about the election, this and that. The reason I'm not too worried about it is that corporate America is strong right now. The economy's moving along. The Fed is on record saying they will do anything they can to make sure the economy, stays afloat. Yep. And protect against inflation, but at the same time protect against complete economic collapse. So I really think that. We're gonna have one of those years where just companies that the average employee at the average company goes to work every single day, Monday through Friday. So weekend with their families as church ball games, whatever, back to work. And they're working just like we do. Yeah. And they're working towards their goals. They're gonna make their goals and those results are gonna show up in the bottom line of these corporate companies. And that's gonna be a very positive thing. So there's no, there's a lot of. Of klaxon calls right now out there that are like, it's a political year. Sell everything, freak out. What if the wrong person gets elected? And that sells headlines regardless of which side of the aisle you're on, and it totally sells eyeballs. Stay tuned for more. Yeah. To hear what said or what? Did, yeah, that's a hundred percent just selling eyeballs as it's really not news, right? The because it may have even happened. Two or three weeks ago. And it's just being regurgitated. Yeah. In a different way because they need something to talk about. They have to. They have to. But and when I say advertising, just think that's the key, is those advertising plays, right? Yeah. That's the key. In an advertising centered election year, what happens after the election? That's anyone's guess, right? Yeah. Typically after an election year, the markets do tend to just settle in a little bit. Doesn't mean they have to collapse, but they may just have a year where they don't do a whole lot. Yeah. And the reason for that is whoever gets elected, they've got, now they've gotta put in all their new people. They've gotta deal with the new, make-up of their congressional and their senatorial sides and parties and see where they're at. And believe it or not, they do have to come back and try to balance a budget again. And I know that's the last thing we wanna talk about. See how that goes. Yeah. But Right. And then, and when, while they're doing that, they're not spending as much money as. The political parties may have been spending during the election year to try to call in any and every favor and any and every vote they can get for their particular side. Yeah, absolutely. And at the end of the day, markets like certainty, they like to know what's gonna happen. The reality is we never know what's gonna happen. There's always a level of uncertainty. So when that level of uncertainty rises that, that creates more volatility in the market. Now, that's not necessarily a bad thing if you're investing for the long term, because if you're investing in companies that have stable earnings and are going to grow over the long term and you think have a good chance of being around in the future, does it really matter what they do next week? Or if there's a headline next week that makes 'em have a bad week? No, because at the end of the day, it doesn't affect your overall plan and what you're trying to accomplish. So now I'm with the average person out there though when I see like my little. On my phone that breaking news go through and I'm like, there's pirates with drones attacking oil tankers. And that's when I get that text message. Yeah. It says, Ryan, have you seen this? Holy heck, what's going on with the world? Yeah. It's, that's scary no matter, even if you're like it's just one oil tanker and it's just some pirates and. There's a lot of other bad guys that are even worse than those guys out there. It's usually my response but the thought is that, that is shocking to the average person, right? Yeah. Doors flying off of airplanes. Yeah. In flight. I'll be honest, the next time I get on airplane, I'm gonna check the door. I'm gonna, I'm not gonna change. I'm gonna make sure my seatbelt is extra tight.'cause I, I sometimes put that seatbelt on just a little loose. Yeah. Just for comfort, but there's no, I'll have a mark. I'll have a seatbelt belt mark on my belly button, after the next flight. Yeah.'cause I don't wanna fly out the door, yeah. But there's a lot of things that happen. And so the example though, being those are events that happen where the company's tied to that, or the market in general, like a israel war, right? Or Russia Ukraine last year, when it was captioned, all of the headlines. It's still going on by the way. It's just we, the news cycle has moved on to the, they have things that'll sell more headlines now, so they've moved. But when those events first happened the markets did gyrate and there was a lot of volatility just because, as you said, uncertainty. Absolutely. So any other things that people should be watching for in 2024 or. Things, just interesting ideas for the markets in 2024. Yeah. I think that kind of stick to the idea of volatility first for a second. Get used to the idea that volatility is not going away. Yeah. This, we do not live in the world that I grew up in where I rode my BMX bike up to the library on Saturdays. It was a BMX Diamondback by the way. Just in case you're wondering. I don't know what that means, but Okay. In my day you can look it up. It's, they're like antiques now. Okay. It's probably worth some money. It's probably worth more than what my dad bought it for me for now if I had kept it, but I didn't think about it being a collector's item. Yeah. The, but I had to ride my bike up to the library. Go to the newspaper section. And it was literally just like Rods hanging in kind of a file cabinet and you pulled the rod out and it had the Wall Street Journal in there and you'd page through the Wall Street Journal. And back then there used to be, hundreds and hundreds, if not thousands of stock tickers in the Wall Street Journal. And it would have the ticker price and it would have the high and the low for the week. It would have the 52 week high and low, right? It would have the change for the week and the last price. And they don't have a plus or minus kind of thing. And I would check every single one of my stock portfolio, whether it was companies I owned as a kid that I got gifted, or companies I just followed because it was interesting 'cause I knew my dad owned them, right? But I would do that once a week. Now in today's world, you can literally look on your phone, right? All of us can, and see your stock portfolio and any other company you want. You can see it changing prices. Literally second by second on your phone. Yeah. And so I think we're in this world where volatility is here to stay because of all of the computing power that we do have to disseminate news much faster than the old news cycle used to be. Yeah. And so because of that, we not only disseminate the good news faster, but also the bad news faster, and then we just move on to the next thing. And so that's that volatility we get. And so around the election, I wouldn't, I would tell people, don't be surprised, right? If you're turning on the election news and you hear the Dow futures or the S&P futures or plunging based on the fact that they love the word plunging, that's one of their favorite words. Machine, right? Diving is another one. Or Free-falling. I've heard that one too. Oh, they love these big, like just huge scary words, but based on whoever was elected. Yeah. And that doesn't mean the next day they're gonna be plunging. It just means that in that moment, the computers that are trading the futures markets and a few human beings are anticipating a negative response by everybody else when the market's open. Yeah. It doesn't mean they're right at all. In fact. Every single night. Every single night. The futures markets are going on and are trading up and down in anticipation and they're rarely right on market direction. Yeah, it may be right in the market direction from nine 30 in the morning till two in the afternoon, but it might not be right the rest of the day. Or it might be right for a week, but it won't be right the rest of the month. And it certainly isn't right for a year or longer. So I just tell people just. Don't get shocked by the volatility and don't let that type of activity in the market or the headlines keep you out of making your contributions to your accounts. Or, the, whenever there's market volatility, we get a lot of questions for people on their 4 0 1 K's are like, should I reduce what I'm putting into my 4 0 1 K's because the market's going down. And that's the same as someone, I never have someone complain to me that's like looking for a new home that like, we were gonna make an offer on this new home to buy it at XYZ Price, it's 10% off right now, so we think something might be wrong with a home. We're not gonna buy it. Yeah. But people do that with their retirement plans and with their investment portfolios. It's absolutely mind-numbingly crazy. It's the only thing in the world where it can go on sale and. People get mad about it. People get mad about it. They yell at people and they won't buy. Yeah. So I would just tell people my goal for 2024 for all people out there would be that they just, they, it's fine to tune into the news. It's fine to pay attention if that's your, if that's your thing that, gives you a life and you love the rig and roll of the political world or whatever it might be, go ahead and follow it, but don't let that and the headlines influence your investment portfolio. Yeah. Absolutely. So just another point on that, the Dow Jones, everyone knows what the Dow is. Do you remember what it was when you started in the investing industry ish? I think it was right around the low on it was right around 8,000. Okay. So do you remember the. Worst day of the first couple years. Like what? When the headline said Dow drops. Oh yeah. How many points it was? I think the number, if I recall was like 500 eighty-two points. And that was probably a atrocious day. That was a, that was like a four point a half percent down day in the market. Yeah. So nowadays we see headlines that say Dow Joe's down 800 points at the open, and that scares a lot of people. But something to keep in mind now that the Dow is at thirty-seven thousand just percentage-wise, it makes a big difference. And that's it's not as big of a drop because percentage-wise, it's not as big. The other thing I would point out on that, and now granted past performance is no, guarantee on future results, obviously never a guarantee. However, over the last, since you started the industry a long time ago, what year, ballpark. Ninety-eight ninety-eight. Okay. So since 19 ninety-eight was my first license. Yeah. Realistically, since 19 ninety-eight, we've had nine 11. We've had multiple wars in the Middle East. We've had how many presidents? 1, 2, 3, 4, 5, 5 presidents now. Since ninety-Eight and how many bad earnings calls? Different. Three, four federal chairs, federal reserve chairs that did all kinds of crazy things. A housing crisis, all these different things. That caused the market to go up, down, sideways, bad days, good days. But at the end of the day, it's just continued to over the long term grow if you're invested in the good companies and invested in America. So I think that's just a good reminder for people out there when inevitably this year, there are gonna be days that are ugly and there's gonna be weeks that are ugly. And over the next several years, there will probably year be years that are ugly. But at the end of the day. If you're investing for the long term and investing in American companies that do the right thing and continue to grow, you're gonna be okay. And I think the key there is, profitable companies. Yeah. Profitable companies. Yeah. And when you look at like indices, right? Like the S&P 500 or the Dow as just an example. Typically the stocks that are in those are companies. That have shown a history for an investor of making money. Yeah. Doesn't mean every single quarter. Every single year they will, but they've, they actually have to meet certain qualifications to get in there. Yeah. And those, one of those qualifications is show an actual profit. Yeah. So when you're buying stocks, if you're buying stocks that are pitched to you on TikTok, if you're buying stocks that are pitched to you on YouTube, if you're buying stocks that are just. Pitched to you by your buddy who doesn't know anything about anything, right? And yet he's you can buy this next, Microsoft or Apple for 20 cents. That to me, for the average person should be a real red flag because what Ryan's talking about is only profitable, solid American companies that. Have literally millions and millions of dollars a day flowing into them in business, not fly-by-night companies. That could be the next great thing. Not to say that for the person out there that wants to dabble, we, everybody in the industry refers it to it as, that's your mad money. Yeah. That's your mad money, but the money that's going into your retirement accounts, those retirement accounts, the fiduciaries within the retirement accounts, they're choosing funds for you to invest in. Right that invest in good quality companies. That's part of their requirement that they have to do so that you know you're buying chocolate, vanilla, or strawberry ice cream. Yeah, you like Rocky Road you's great. You can get on TikTok and hear all about Rocky Road, but don't put the entire retirement fund That's right. In Rocky Road's. And, And Fidelity won't let you Yeah. Within your retirement account. Just keep in mind that, the hardest thing about the investment game right? Is deferring money from one's paycheck. Is is deferring instant gratification is saving money. Towards a goal that you don't know exactly when you're gonna reach that goal. Yeah, that's a hard thing for a lot of people. They're like I'd rather go out and take advantage of the sale on these shoes or these sale on this, or go on a trip or this or that. But part of saving and part of investing is future based. And you don't necessarily know exactly what the future outcome is gonna be. If I've gotta make a bet, if you will. I'm gonna bet on America every day against the rest of the world because, since I've been in this business, regardless of immigration laws, presidency to presidency, they change, right? Everyone outside the this country that is an entrepreneur. And it's super smart and wants to start something, wants to come to America to do it. Yeah. And that's why we're called the Great Land of Innovation and I don't think that's gonna ever change. Yeah, I agree. I agree a hundred percent. Thank you all for tuning in to our market update. We don't like to do all the market updates on In My Day, but we like throw it in there every in a while. They get boring after a while. Yeah. Like we can only tell you like this and that and yeah. Absolutely. And just as a final reminder. We're not making any specific recommendations for anyone. No. Everyone's situation's different, so if you have questions about your specific situation, then let us know and we'd be happy to talk to you about that. But don't take this episode as a reason to do anything off of that. That's right. We may be full of flu and totally wrong. Absolutely. We'll see you guys next month. Thank you for tuning in.
