Financial experts at Huntington Bank, like economists around the country, expected to see a recession this year.
And those same experts have all been confounded a little because it didn’t happen. And, according to John Augustine, one of the leading factors in avoiding a recession – and casting doubts on the idea there may be one next year – is the performance of stocks.
Augustine, chief investment officer for Huntington Investment Company, told participants in the quarterly call the bank has with its customers that folks who expected the recession were “over-cashed” coming into this year in an effort to survive it. Part of the reason? Stocks.
“Stocks are having a good year, the S&P 500 is up over 15%, overseas developed stocks are up over 10% this year,” Augustine said. “The leadership in stocks this year has been the big tech companies; no one else in the world has them. They’ve done well, and that helps the S&P 500.”
While the “big 7” technology companies have done well, he said, so have some overseas stocks. What has been trailing, he pointed out, is commodities. Last year, it was the other way around.
“Commodities were leading last year, stocks were trailing,” he said. “Last year was a tough investment year. This year has been much better. This is one reason you stay invested. Stocks bottomed in October last year, and right when the news was the worst is when they bottomed. And they’ve moved up since then. It’s why you stay invested.”
Next year could be different, Huntington experts warned, because it’s a big political year, with the presidential and Congressional races dominating the landscape.
“Politics is going to be on our minds next year,”Augustine said. “But remember when you’re investing you want to invest on policy, not politics. Politics is usually a very unprofitable way to invest.”
Augustine said there are what he called “cross currents” in markets that lead experts to be a little conservative. Among them:
- There’s a great deal of debate on what the economy is going to do next year. “Obviously this is being debated in markets every day, but for business customers, ‘What do I do? How do I plan for next year?’
- It’s an election year next year, with all the unknowns of an election year.
- Thirdly, and this is a new one, crude oil is on the rise. “This has really happened over the past couple of months,” Augustine said. “It’s up a little bit, hanging above $90 a barrel. It continues to put upward pressure on gas prices and that’s one of our … definitions of inflation.”
- The fourth item here, he pointed out, is something that’s developed through this year. “We’ve seen Europe slow down a little bit,” he said. “We haven’t seen China pick up the pace the way we thought we would after they took down their Covid restrictions; actually, the U.S. is leading in economic growth and, in many respects, market growth.”
Another confounding element, Augustine said, is the consumer. Across the country, he said, the consumer “is still heathy.” The national unemployment rate is low, spending continues to rise and consumer confidence levels are up.
“The U.S. consumer is really driving this economic car right now,” he said. “Will it continue? Probably. The question is, will it run out of gas next year, and we don’t know that yet. Right now, it’s a positive.”
Next year, the economy may slow and corporate profits may rise. If we lower interest rates come with that, and if the economy doesn’t slow too much, next year could be a “really good year for stocks.”
“If economic estimates continue to move higher and then they deliver on them … companies have already put in place a lot of cost-cutting measures this year to improve profitability next year, even if the economy does slow,” Augustine said. “It’s still 50/50 as to how much the economy slows down next year. The Fed is going to be the arbitrator.”
Huntington has a five-step “to-do” list to help its customers get it right. On the list:
- Start investing. “We hope we did that in our 20s, I hope we maxed out our 401(k) plans, made contributions to our IRAs, etc.,” Augustine said. “That’s basic, but that’s where we start.
- Stay invested. “That’s what this year has been about, he said. “Last year was a tough year … a lot of people thought this year would be, too, but it hasn’t been.”
- It’s a periodic adjustment of investments. “Perhaps the biggest point here has to do with staying unemotional,” he said. “Emotions and investments do not mix. Emotional investing is usually very unprofitable. We see that in 401(k) plans and it’s a shame.”
- The tax policy that was enacted in the previous administration … a lot of that expires in the next couple of years. “Use next year to review your estate plan, review your insurance, get with your advisors,” Augustine advised. “There will be, as it stands today, changes in the estate tax code coming into 2025.”
- What’s coming in 2024 is a series of cross-currents. “We have a UAW strike that looks like it’s going to be expanded. We have a federal government … will they or wont’ they shut down on Oct 1 because they can’t get a funding bill passed? We don’t know.”
“But we have some good things going on in the economy as well,” he said. “Again, led by the U.S. consumer. And even the consumer has shifted from goods spending to more services spending and travel … the consumer is still in the game. Businesses are profitable, households are healthy, business balance sheets are healthy. We’ll all be watching government a little more next year now that we’re headed into an election year.”
One variable Augustine said he can’t predict is the potential government shutdown.
“In general, things slow down,” he said. “The U.S. government is a big spender. We suspect the baseline now is they do leave … we hope it’s not out too long, just as we hope the UAW is the same thing. Think of the federal government as a big spender coming out of the economy. If they’re coming out, UAW and car production is coming out of the economy, that’ll tend to slow things down as we move into next year. We just don’t know the outcomes yet. We’re hope they’re good we hope they’re short.”
