The following post is courtesy of Diane Harrison who is principal and owner of Panegyric Marketing, a strategic marketing communications firm founded in 2002 specializing in alternative assets.
In an early November article on US News.com, Will The Stock Market Crash in 2023 or 2024? 7 Risk Factors, Brian O’Connell summarized concerns that are causing investors all kinds of nervousness going into the markets for 2024. Below his points I added some suggestions for marketers to help mitigate some of the fears that reluctant investors are showing over moving their assets among investment options during this time.
Powder Keg in the Middle East
“The war in Israel appears to be spreading and if this holds true, oil markets could be severely disrupted, sending oil prices much higher and taking a bite out of non-energy discretionary spending,” says Clinton McGarvin, senior portfolio manager at Allen Trust Company, a private wealth management firm.
The protracted situation in the Ukraine compounded with the newest developments between Israel and Hamas is a double-sided whammy to investors’ willingness to take on added risk in their portfolios. There isn’t any sugar-coating for this type of military conflict that any marketer can apply. The best option for sales professionals here is to focus on both prospect and client communication to keep relationships strong and focus on when the geopolitical situation has a clearer signal on a long-term direction.
Negative Consumer Sentiment
“The factors contributing to the strong equity market performance, especially in the first half of this year, have largely ended and are reversing,” McGarvin says. “Thus, we believe the record balances on consumer credit cards combined with the higher interest rates on that credit card debt, the fully spent pandemic benefits, and what we believe to be the end-of-recovery splurge on vacations and similar activities will reduce consumer spending growth to levels well below the level of the last three years.”
While people are tightening their spending habits in reaction to these issues, they may be willing to take a good look at how their savings plans are doing and ways to make their money work harder for them through asset allocation. The early part of 2024 is a great time for marketers to roll out an investment education platform and discuss ways to optimize performance across a range of risk/reward scenarios through investment strategies designed to perform over a longer time horizon.
Cyclical Stock Market Realities
Stocks have a history of performing in upward and downward cycles, and that’s what investors might see toward the end of 2023. “The market produces 10% to 20% declines every two years or so,” says Michael Rosen, chief investment officer with Angeles Investments. “Investors would do well to ignore them.”
Similar to the suggestion above, some well-timed reminders of the longer arc of stock market returns during more difficult cycles combined with infographics can be a useful tool to open investor discussions in early 2024 and get them refocused on their goal and objectives with a less reactionary eye to today’s situation.
Overpriced Stocks, Inflated AI Shares
“Both markets have reacted to the Fed’s inflation battle and the transition to ‘higher for longer’ interest rates,” says Andrew M. Aran, managing partner at Regency Wealth Management. “Stock market results have been skewed by artificial intelligence-related stocks, while bonds have repriced to higher rates.”
Weaker Investor Sentiment
When investors see a tsunami of market impactors, they understandably become skittish. “Corporate earnings have held up pretty well, but (there is) an increasing likelihood that slower demand and higher funding costs are weighing on their outlook,” Aran says. Geopolitical risks are adding to that fear of further market downside. “Uncertainty always feeds fear, and with money market funds and short-term Treasury bills yielding 5% or more, many investors are choosing these safer alternatives,” Aran says.
High Interest Rates
“Despite consumer resiliency, the recent rise in interest rates has been precipitous, and in past environments – even with less severe interest rate shocks – this has led to economic dislocations.” Based on that outlook, Fannie Mae expects to see “a mild economic downturn in the first half of 2024,” Doug Duncan, Fannie Mae senior vice president and chief economist, adds.
Unpredictable Fed
The ultimate arbiter of where interest rates go from here is the Federal Reserve, which has been on a rate-hiking mission over the past two years. Since March 2022, the Fed has boosted rates from 0.25% to 5.5% in 11 rate-hike intervals. Right now, there’s little consensus on what the Fed will do in late 2023 and in 2024, which contributes significantly to market jitters.
All of these concerns are related in that they give rise to investors’ lack of feeling in control of their finances, and fear of taking any strong directional position to allay these concerns. But there is a bright side to the gloom: they also present a strong case to promote the value of alternative assets in a diversified portfolio. When easy money in stocks is not overshadowing the value-add of understanding alternatives, investors have a ready ear to be persuaded by thoughtful, clear illustrations of just how these alternatives can perform.As O’Connell concludes in his article, conventional wisdom during chaotic market periods is to take a deep breath, focus on the long haul and generally keep your stock positions stable. History shows that markets always rebound after downscale performance periods, and this market should be no different.
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