As we approach the midpoint of 2024, we pause to look back over the first half of the year to review what has happened, seek to understand how we got to where we are today, and what that means going forward.

At the start of the year, the major headlines or topics concerning many analysts on Wall Street and investors across the country were:

*When will the Federal Reserve start cutting rates?

*Is artificial intelligence here to stay or just a fad?

*How will the election impact the markets?

*How will the growing national debt impact the economy?

Here is what we have learned so far and how that has impacted the economy to this point in the year.

Going into this year, many analysts on Wall Street were forecasting there would be multiple rate cuts, with the first cut forecasted as early as March. The optimism was based on reported inflation data that showed inflation was cooperating with the actions of the Fed, and many thought this trend would continue into 2024, leading to rate cuts.

As of May 31, the Fed remains steadfast in its guidance that rates will stay higher for longer. We are optimistic that there will be rate cuts later this year, yet we also have been far less presumptive of those cuts knowing from history, such as in the 1970s and 1980s, that inflation can be stubborn. We are starting to see, however, the desired effect of the relatively elevated interest rates. Consumer spending is down. Corporate earnings guidance is being adjusted to reflect consumer spending, and gross domestic product growth is slowing. Those are positive signs and bode well for those hoping to see interest rate cuts this year.

A quick note on interest rates: The Fed’s stated goal, given to it by Congress, is to “support the goals of maximum employment, stable prices, and moderate long-term interest rates.” The Fed seeks to accomplish this through interest rate control.

The Fed adjusts interest rates like you adjust the thermostat in your home. When the economy is too “hot,” it turns the air conditioning on—raises interest rates—to keep the economy growing at a comfortable rate. This is why people like myself are very interested in the Fed’s adjustments of the economical thermostat.

Will we have a soft landing for the economy? There is no real clear answer yet, but there is growing optimism that the Fed will be able to navigate a soft landing successfully.

AI has been front and center for a while now, and the question has been: Will AI be monetized successfully to justify the high valuations of the companies that use it?

Tech stocks have been leading the charge in the AI space for the last couple of years. Through the end of 2023, their incredible growth appears to have been fueled mostly by speculation and intrigue more than by actual revenue generated by AI.

Many analysts are expecting this to be the year when AI companies turn speculation into revenue. Although there are signs that this is starting to come to fruition, there are still many questions to be answered and challenges to overcome before we can fully understand the impact AI will have on financial markets.

As you know, 2024 is an election year, and every four years the question is how this election cycle will impact the markets and the economy.

When it comes to elections, the markets like certainty. That is why the markets tend to do well when there is an incumbent president seeking re-election. Since 1955, in the years that an incumbent president was seeking re-election, the stock market was up on average nearly 12%, according to LPL Financial Holdings Inc. research. During that same time frame, when there was a presidential election without an incumbent, the markets were down on average about 0.4%, LPL research shows.

This year could prove to be an outlier as we have what may end up being one of the most divisive and volatile election seasons we have experienced.

Government spending has been an area of concern for years. The federal government has been running at a deficit since 2002. As it has done so, our national debt has ballooned to $34 trillion. With all the spending bills being brought before Congress, the federal spending does not look like it is going to slow down anytime soon, especially since the two frontrunners in the presidential race have a propensity for spending.

This type of spending limits our ability as a country to invest in key areas that can help fuel economic growth and our ability to respond to crises. It also could have a negative impact on the value of the dollar. There have been initiatives presented to reduce our federal spending and put us on a more sustainable path as a country. Time will tell if reducing the national debt is as important as many politicians say it is.

As we look to the second half of 2024, there are reasons for cautious optimism.

From a market perspective, history has shown that if the markets are positive in January and February—which they were this year—then there is over 90% probability that they will be positive for the rest of that year, according to Carson Investment Research.

There is also continued confidence that the Fed will cut interest rates this year, easing the burden of higher rates on the economy.

And lastly, one thing we have been reminded of over the last couple of years is that the American consumer is resilient. In the face of many challenges, we have continued pressing forward with the confidence that we can weather any storm and ultimately come out the other side stronger.

That is the American spirit that we know and are immensely proud of.

John Graham is a certified investment management analyst and a financial adviser and partner with Spokane-based The Graham Group, at Stifel Financial Corp.