Welcome to another episode of “Ethel’s Diamond Post.” As we step into the fall season, we find ourselves in a pivotal year where the upcoming election, with its historical significance, profoundly influences our economic terrain. This year, October and November, typically reserved for ‘harvesting losers and offsetting gains,’ take on a new importance. The outcome of this election could significantly reshape our investment strategies and the economic landscape, making it a crucial factor to consider in our financial planning.
As we approach Election Day, it’s crucial that we, as voters, understand the power we hold. Whether you align with the Republican, Democrat, Independent, or Undecided camp, your vote is not just a mark on a ballot; it’s a symbol of the struggles and sacrifices of those who fought for the right to vote. Your vote is a powerful tool that can shape our economy and nation’s future. Each vote matters, for this is a freedom that so many people lost their lives for us to have this right today. We have come a long way, but we must do our part and encourage everyone to vote, whether you agree or disagree with both candidates. Your vote is not just a choice; it’s a responsibility and a privilege that can make a difference.
Understanding the state of the economy is not just crucial; it’s empowering for making informed investment decisions. The Federal Reserve, a key player in our economic landscape, lowered borrowing costs by a half percentage point in September, the first reduction since 2020 and a larger-than-usual move. Federal Chair Jerome Powell said, “The central bank will lower interest rates over time, emphasizing that the U.S. economy remains on solid footing. He also reiterated his confidence that inflation will continue moving toward the 2% target.” The political debate is about how policymakers will approach the size and pace of easing in the coming months. Understanding these indicators, such as interest rates and inflation, is not just a matter of financial literacy, but a key to navigating the investment landscape with confidence and preparedness.
The election’s outcome could significantly sway the financial markets as we approach November 2024. Whether it’s a victory for Donald Trump or Kamala Harris, each Administration will introduce unique policies that can create investment opportunities and potential risks for investors. With such a diverse political landscape, it’s not just important, but it’s crucial to understand how these possible outcomes can shape the stock market. If Trump wins, the election result will likely favor the traditional energy sector, with policies aimed at rolling back regulations from the current Administration that have limited oil and gas exploration. Defense spending is another area that would benefit from a Trump victory. Trump strongly advocates increasing military spending to modernize and strengthen national security. Given that defense spending has increased in both Democratic and Republican administrations, this is likely to continue. Defense stocks typically play a defensive role in uncertain market environments and are equal dividend payers. Understanding this political landscape is essential and crucial to being informed and prepared for potential changes in the stock market.
If Kamala Harris wins the election, it will create significant opportunities for the clean energy sector. Harris is expected to promote policies that increase investments in renewable energy sources, potentially leading to a surge in the solar, wind, and energy storage industries. This could be a promising investment area, given the increasing global focus on sustainability. However, it’s important to note that more than 100 solar-related companies filed for bankruptcy in 2024, so investors must remain cautious about individual company fundamentals. Harris’s healthcare agenda is expected to focus on expanding access to healthcare, strengthening the Affordable Health Care Act, and implementing policies to reduce prescription drug prices. This increased focus on public health could have a ripple effect on the stock market, particularly for companies involved in healthcare services and medical device innovation.
Additionally, with an increased emphasis on public health, biotech companies engaged in innovative medical research and vaccine development could also experience growth. Harris has consistently supported advancing technology, particularly artificial intelligence (A.I.), cybersecurity, and 5G infrastructure. Consumers and investors can expect further investments in tech sectors that improve digital access and data privacy protections, offering a hopeful outlook. The potential opportunities in these sectors can bring a sense of optimism and hope for the market’s future, providing a silver lining in the midst of potential market volatility.
Regardless of who wins, the election outcome presents risks that investors must consider. Election years typically bring increased volatility, and this year is no exception. At VZD Capital Management, LLC, we are disciplined in managing the uncertainty surrounding tax policy outcomes, interest rates, inflation risks, and the effect of international wars on our economy. Our strategy is to monitor the portfolios for risk management discipline, which means taking profits, rebalancing portfolios, and utilizing stop-loss levels to mitigate an abrupt and severe downturn in stocks, bonds, and real estate investment trusts (REITs). We have implemented strong, dividend-paying stocks with solid income histories, which can provide income during market uncertainty and reduce portfolio volatility. This approach is designed to give our investors a sense of security and confidence in their investments. We are committed to managing these risks effectively so you can feel secure and confident in your investment decisions, knowing that we are dedicated to your financial well-being.
VZD believes in spreading investments across and within sectors that could perform well under either Administration. After all, we don’t know the results of the November elections, but it appears to be a tight race between the candidates. We have been through many other political seasons, which brought similar catalysts, but some were unprecedented for this election. Despite the approaching election, we are in an “everything market,” which means most companies are increasing in value. An ‘everything market’ is a term used to describe a market where almost all stocks, including value, growth, small, large, defensive, and cyclical stocks, rise significantly simultaneously. This can be a good sign for investors, indicating broad-based market growth. However, it also suggests that the market may be overheated, and caution is advised. While the current market conditions are favorable, they may not last, and a correction could be on the horizon. It’s essential to remain vigilant and consider potential risks in your investment decisions.
Typically, September is the cruelest month for stocks. In the third quarter, small and mid-cap equities outperformed large-cap growth stocks. However, the S&P 500 advanced 2% last month, the best September since 2013. Over the previous three months, the Dow led the significant index gains, up 8.2%, the S&P 500 gained 5.4%, and the Nasdaq added 3%. The stock market’s unexpectedly strong performance resulted from solid financial results and interest rate cuts. More importantly, the S&P 500 companies recorded earnings growth of 11.3% in the second quarter of 2024, the best performance since the fourth quarter of 2021. The jumbo interest rate cut and signs of resilience in the U.S. economy have lifted confidence, helping stocks post three weekly gains. The start of October could further boost the bullish mood if the next batch of economic data shows more favorable signs.
Lower interest rates should strengthen the economy by encouraging consumer spending and business investments, driving continued strength in corporate earnings. The fourth quarter has historically been the strongest quarter of the year for the stock market due to the expectation that holiday spending will help boost the economy. Since 1950, the S&P 500 has gained an average of 4.3% in the fourth quarter. However, stocks are historically expensive, so the first sign of economic trouble could trigger a ‘market correction,’ which is a rapid and usually short-lived decline in stock prices, or even a ‘bear market,’ which is a prolonged period of falling stock prices. So, investors should be particularly aware of valuations when buying stocks in the current environment.
VZD CAPITAL MANAGEMENT, LLC is passionate about protecting our clients’ assets by creating and amending the estate planning process. After many years of persuading clients of the importance of having their affairs in order, regardless of age, health, or asset level, some people may need Durable Power of Attorney for healthcare or financial matters. We have partnered with Free Will to bring Estately, which is specially designed for financial advisors. This is the most popular online estate planning tool in the United States. Free Will was created in 2017 when two students at Stanford’s Graduate School of Business had an epiphany: two-thirds of Americans didn’t have an estate plan due to perceived cost and complexity, but gifts from estate plans accounted for the most significant gift charities ever received. Free Will created a comprehensive tool designed to meet the needs of most Americans in all 50 states.
Estately offers advisors of all sizes a differentiated, best-in-class product. We now can give our clients and prospects access to legally valid documents in all 50 states and Washington, D.C. We can deliver Estately’s team of seasoned professionals within the estate planning and financial planning spaces. We can help you achieve your estate plans documents including, but not limited to – Last Will and Testament, Revocable Living Trust (with pour-over-wills), Durable Power of Attorney, Advanced Healthcare Directive, HIPAA Authorization, and Beneficiary Designations.
We are excited to announce that the Five Star Professionals team has named Ethel J. Davis and VZD Capital Management a 5-Star Wealth Manager for 2025. Ethel has received this prestigious award for 11 years. She credits the clients, friends, and family as the wind beneath her wings. Thank you for your trust and confidence in VZD Capital Management, LLC.
We are scheduling portfolio reviews before year-end to ensure we have a roadmap for the remainder of the year. The reviews prepare the firm for tax and retirement planning before the new year. We thank you for your continued support and patronage and for referring your friends and family to our family-oriented firm.
With Gratitude,
Ethel, Nikisha, and Nathan