Our Latest Thinking on the Economy and Your Portfolio Advisory Services Account

Economy still expanding


Fidelity® Wealth Services

BY STRATEGIC ADVISERS INVESTMENT TEAM - MARCH, 2024


Market conditions

We believe that the U.S. economy remains in a late cycle expansion. This is a phase of the business cycle in which stocks and bonds have historically risen. But during late cycle, the economy typically grows at a slower pace, so markets may experience some volatility.

  • Unemployment rose slightly to 3.9%, still near historic lows.1 The job market remains a source of strength for consumers and the economy.
  • During Q4 2023, U.S. corporate profits grew about 8% and the outlook for corporate profit growth continues to remain healthy for 2024.2
  • Consumer sentiment is better than it was in 2023, which may support further consumer spending and corporate profit growth.3
  • Inflation remains slightly above 3%, the 100-year average of the U.S. consumer price index. While this has come down meaningfully from its peak of about 9% in 2022, further drops in inflation may be more gradual and uneven.4
  • Most market participants believe the U.S. Federal Reserve (The Fed) is unlikely to cut interest rates before June this year, as the economy remains strong and inflation falls at a slower pace.5


What it may mean for your portfolio

U.S. stocks have had a strong start to the year, likely supported by positive earnings results from Q4, 2023. Ongoing economic expansion may continue to support stocks.

Outside of the U.S., international stocks have also experienced gains to start the year. Like the U.S., several key economies around the world have benefited from falling inflation. The outlook for global profit growth remains positive as more economies show signs of improvement.

Certain news headlines and hypothetical possibilities around the U.S. election may leave some investors nervous about markets. However, our research shows that stocks have historically risen during the vast majority of election years, and in the first year after elections. Our focus remains on the economic cycle and corporate profits, since, historically, U.S. stocks appear to be driven more by these factors, rather than the U.S. election cycle.

While the recent rise in stocks has been encouraging and could continue for some time, we believe managing risk is key during late-cycle expansions. Any signs of slowing economic growth or stickier inflation may lead to periods of market volatility. This is why our positioning to stocks, bonds and other investments remains closely aligned to our client’s long-term goals. We believe this approach may allow investors to benefit from further market rallies, while diversification may help soften potential volatility within client accounts.



Outlook

We will continue to closely research and analyze the current position of the U.S. economy within the business cycle. As the need arises, we will seek to reduce the level of risk within client accounts. Just as importantly, we will look to rapidly add back to long-term growth opportunities when we start to see early signs of economic stability. We believe these actions may help deliver strong risk-adjusted returns for our clients.



Make a plan, stick with it, and stay invested

Market conditions can change quickly. Historically, the market has sometimes rallied, even as news headlines may have felt discouraging. We want clients to benefit from market rallies, like the one that has taken place over the last several months. As a result, we have maintained healthy exposure to stocks, even through bouts of market volatility. We believe that getting invested and staying invested can help you reach your financial goals over the long term.