The third quarter of 2024 continued the remarkable trend we’ve seen this year, delivering strong market performance and optimistic economic data. Up 22% year to date, the S&P 500’s performance ranks 9th all-time.* Emerging markets continued to outperform domestic markets as China’s stimulus package buoyed performance. International developed markets continued to benefit from lower interest rates and outperformed the S&P for the quarter, although the S&P remains ahead year to date.
Volatility increased in the third quarter as the market saw some uncomfortable drawdowns in August. Performance evened out from the largest names of the Magnificent 7, as almost every sector saw positive returns for the quarter. Energy was the lone negative sector, although Technology and Communication Services came in close behind. Surprisingly Utilities, Real Estate, Industrials, and Financials were the top 4 sectors of the quarter, as U.S. Large Cap Value finally made a comeback and Growth’s impressive returns slowed.
Interest Rates
As predicted, we saw the first rate decrease from the U.S. Federal Reserve in September, lowering the Fed Funds Rate a surprising 50 basis points in their first move since 2020. After unpleasant drawdowns in August and early September, markets approved of the Fed’s decision, notching new all-time highs. The U.S. Aggregate Bond Index is up 4.5% year to date as the yield curve slowly begins to normalize and intermediate and longer duration bonds shift back into favor. Guidance from the Fed signals another -50 basis points by the end of the year, however, it’s possible the next moves will be in 25 basis points increments as the Fed continues to monitor the economic data.
Employment and Outlook
Momentum remains favorable in the U.S. economy. The unemployment rate fell to 4.1% in September and labor force participation remained stable at 62.7%. Temporary help payrolls continued to weaken, and jobless claims rose this week, signaling caution. The latest estimate for U.S. 3rd Quarter GDP remains positive at +2.5% quarter over quarter. The September Consumer Price Index rose 2.4% year over year, while Core CPI was up 3.3%, slightly higher than expected. The monthly personal saving rate was previously reported at 2.9% in July, but later revised higher to 4.9%. The number was 4.8% in August, providing evidence that consumers are still saving despite higher prices. The U.S. Dockworkers’ strike ended after only two days and the supply chain remains intact for the holiday season.
October 12 marks the second anniversary of the start of the current bull market. The good news is, when looking at market history, this bull market is young in terms of duration and returns. However, history warns that the third year of a bull tends to be more volatile. We may not be up another 22% when we write about Q3 next year, but history shows returns are typically positive.
Now that the Fed has officially begun cutting interest rates, it makes sense to look at past market performance during rate-cutting cycles. Trends since 1928 show stocks historically outperform bonds, and bonds outperform cash. In the 12 months after the Fed begins cutting interest rates, the average real return for U.S. stocks is 11% (source: How Do Stocks, Bonds, and Cash Perform When the Fed Starts Cutting Rates? (schroders.com)). While markets can certainly be unpredictable, especially in the short term, we remain optimistic about the current bull market.
Election
Finally, we would be remiss to not acknowledge the upcoming U.S. elections that are only weeks away as of this writing. While politics have become increasingly polarizing, emotional, and dramatic, it’s crucial that investors remember that markets are rarely affected by the controlling political party or election results. While short-term volatility is to be expected, investors who removed themselves from the market during past elections ended up worse off than those who remained invested. Short-term market timing has historically been one of the worst things investors can do to their long-term portfolio performance. At a time when emotions may be high, taking the long view can be heartening. Remember, shareholders invest in companies, not politicians, and stocks haven’t shown much of a party preference. The market isn’t a reflection of who gets elected. but of the efforts of companies to provide goods, services, and innovation.
At SIMA, our focus is on your personal goals and long-term plans. We believe it’s important it is to have someone to guide you through uncomfortable short-term volatility and help you remain focused on those long-term goals. Investment plans should change when your goals change, not during times of market drawdowns or even pivotal election years. Please reach out if we can help you with your investment goals at wealth@simafinancialgroup.com.
*Individual returns will vary based on percentage allocated to equity, fixed income, and cash
Heather A. Voight, AIF® | Portfolio Manager
Previous Market Commentaries
2024 Second Quarter Market Commentary
2024 First Quarter Market Commentary
2023 Fourth Quarter Market Commentary
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