Dr. James Thorne, chief market strategist at Wellington-Altus, is a top industry expert. He translates complex economic and market issues and grounds his counsel in a historical context to help advisors and investors navigate short-term issues with potential impact on financial goals. His views consider global economic, political and financial market events and their short—and long-term portfolio implications.

Russ Alan Prince: As we look at the remainder of 2024, what geopolitical pivots in the current global market landscape should investors monitor?

James Thorne: Investors should closely monitor the potential for a rapid economic deceleration and the Federal Reserve's response. The inverted yield curve at historic levels, combined with the lagging effects of monetary policy and the strain on the private sector from extreme tightening, could potentially trigger a crisis in global financial markets—a tail risk that cannot be ignored. A combination of excessive debt levels, extreme rate hikes, and the inversion of the yield curve create a significant warning sign investors should heed.

We are beginning to see financial cracks around the globe as economic giants like the U.S. and China make calculated moves to achieve supremacy. Japan also plays a role in the dynamic interplay between nations, where every action prompts a series of reactions.

With the upcoming U.S. presidential election, we are seeing a noticeable trend toward a unified industrial strategy to counter economic rivals. The sustainability of China’s growth, international agreements, and the strategic focus on technology sectors are crucial considerations as well.

Prince: What are the potential risks and rewards for investors in areas such as crypto and tech innovation?

Thorne: Investing in areas such as cryptocurrencies and tech innovation comes with significant opportunities and considerable risks. The technology revolution, particularly in artificial intelligence and blockchain, is transformative, promising to reshape industries, economies and global systems.

The intense competition between China and the U.S. in artificial intelligence, particularly in semiconductors, is a testament to the strategic importance of staying ahead in technological capabilities. AI is poised to affect every aspect of society, from healthcare to transportation and education to entertainment. Its full effects are likely to be felt for decades. The future of AI leadership will likely define the next phase of global technological and economic order, also dictating the direction of the forthcoming technological age, influencing geopolitical alliances and the overall international power structure.

Cryptocurrencies and blockchain technology hold similar disruptive potential. Amidst the global economic turmoil, Bitcoin emerges as an alternative store of wealth and a form of digital gold, offering investors refuge in a volatile market.

Over the past decade, bitcoin has experienced several bull cycles. The first started in early 2015 when the cryptocurrency’s price was $200, then peaked at nearly $20,000 by the end of 2018, yielding almost a 99x return. The second bull cycle began in early 2019 with its price around $4,000. It reached its peak at $70,000 in late November 2021, resulting in a 16.5x increase. However, the current cycle, now one and a half years in, has seen a more modest 4x price increase. Investors in this volatile realm must brace themselves for significant drawdowns, ranging from 5% to a staggering 70%.

Although the crypto market continues to grow, with roughly $12 billion in spot bitcoin exchange-traded fund inflows in Q1 2024 and approximately $60 billion held in bitcoin ETFs, resulting in the fastest launches in ETF history, it will take time for institutional investors to fully embrace this asset class.

In the meantime, investors should remain vigilant for potential bubbles in financial markets. While the rewards lie in embracing the early stages of this revolution, history suggests that with large innovations a bubble is not out of the question later in the decade.

Prince: What lessons can investors learn from historical economic cycles, and how can they apply these insights to current market conditions?

Thorne: Historical economic cycles teach us that innovation persists even after bubbles burst. During the 1990s, when the Internet was being built, companies reached insane valuations before the bubble eventually popped. However, innovation continued in the economy, reminding us that the stock market is not the economy. Investors can apply this insight to current market conditions, recognizing that while short-term volatility may occur, the underlying technological advancements will continue to drive long-term growth and transformation.

A trusted advisor can provide valuable insights and help ensure investment decisions align with investors’ long-term goals. Investors should keep the following lessons in mind amid current market conditions:

• Gain a comprehensive understanding of market dynamics. Research companies, industries, economic trends, and potential risks and rewards before investing.

• Successful investing requires a well-defined strategy. Investors should establish a clear investment philosophy, risk tolerance, and long-term goals that can guide their decision-making.

• A diversified portfolio can help investors withstand economic downturns, industry disruptions and market fluctuations. Speaking with an advisor about scenario planning and risk management is crucial for mitigating risk.

• It’s important to adapt to changing circumstances and adjust your strategy based on changing market conditions, new information or shifts in personal circumstances to limit potential losses.

• Investors should avoid impulsive decisions driven by fear or greed and instead maintain a long-term perspective. Staying the course and adhering to a well-defined plan is imperative.

Russ Alan Prince is a strategist for family offices and the ultra-wealthy. He has co-authored 70 books in the field, including Making Smart Decisions: How Ultra-Wealthy Families Get Superior Wealth Planning Results.