Market Outlook: Making Sense of Mixed Signals

Data is sending mixed signals with significant stock market downside still possible due to high valuations and rising inflation.
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In times of uncertainty, having a plan and sticking to it is crucial. Your chosen investment strategy will shape your experience in this environment.

Looking at economic data today might make your head spin. Some typical indicators point to sunnier days ahead, and other data suggests we’re not out of the woods. For our Spring Market Outlook, we discussed what these tug-of-war conditions could mean for CWM models. We also welcomed William Puggini, CFA®, a senior portfolio specialist at Vanguard, to lend additional insights on current market conditions.

The CWM Perspective

Downside volatility has been unusually low for 2024, at around 2% (until just recently). The most significant drawdown this year is mild compared to past years. This unusual stability may continue – or we may be in for more significant downside volatility later in the year if market behavior normalizes, especially in light of the presidential election.

Market data, from which CWM makes investment decisions, is playing “tug of war,” between positive indicators like positive market momentum and improving economic readings versus negative indicators like market valuation and greedy investor behavior. Interest rate hikes over the past few years have led to an inversion of the yield curve – when the yield on shorter end of the treasury yield curve is higher than the long end – which historically heralds recession.

However, if recession does not happen, we may be in for a “muddle through” or “soft-landing” economy. Bonds historically provide protection in recessionary environments whereas stock markets tend to sell off. However, even in the muddle through economy scenario, bonds and bond-like assets have a strong chance to provide similar results to stocks – or better – with less volatility due to near record high valuations levels that historically correlate with lower future returns for stocks. Recession or not, history suggests a strong possibility of getting stock like returns in the typically much less volatile (i.e. safer) bond space.

CWM Factor Wheel_Data Tug of War

The Vanguard Perspective: A Return to Sound Money

Bill Puggini, our guest speaker, outlined Vanguard’s outlook based on their data and projections:

While zero interest rates are behind us, we will see rate cuts in 2024. The U.S. neutral rate will likely settle at a higher level. When looking ahead, it’s a good practice to consider the possible economic scenarios, and then consider how the Fed may react to them. For example, if inflation continues to be sticky and economic growth stays high, the Fed won’t have incentive to cut rates.

National debt is important, but not urgent. Government debt and spending are a continued concern as higher interest rates exert pressure on debt sustainability, but Vanguard’s view is that this is a long-term concern, not near-term. Spending will need to be brought under control eventually, but we don’t yet see the pressure reaching the point that a debt spiral is imminent.

Domestic valuations bring risk of volatility. U.S. equity valuations are currently elevated and would need to fall to return to fair value. That raises the risk of volatility and drawdowns in the long term.

The benefits of higher rates. Rising rates mean higher returns for long-term investors. While the rise in rates in fixed-income markets was painful, it was ultimately healthy for investment portfolios moving forward.

Bonds are back in a big way. In the global equity and fixed income market, return expectations are high across asset classes after a rough year in 2022. Fixed income returns are attractive at the moment, especially on a risk-adjusted basis.

Vanguard_outlookf for financial markets_12.31.2023

What the presidential election means for your portfolio

As Warren Buffet famously said, “Red or blue, I can still make green.” In short, the outcome of the election is unlikely to make a difference for your investments. Looking at historical data, the market behaves the same regardless of which party holds the presidency. Many are concerned about volatility around the election itself, but again, data doesn’t bear that out. While there will be political rhetoric to the contrary, we don’t see the election or its outcome as reasons to stop participating in the market.


Clients can view a recording of our Spring 2024 Market Outlook Webinar under the “Newsfeed” in your CWM client portal, or request access via e-mail by contacting Additional articles and videos are also available in the “News” section of our website (

If you are interested in a deeper dive into this or other financial topics, please Contact Us or call the office at (425) 778-6160 to schedule an appointment with your CWM advisor.

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