Q3 2024 Market Review
As we do each quarter, the following is meant to be a brief Q3 2024 market review, keeping you up to speed on what’s happening in the financial markets and your portfolio.
- Equity markets finished the quarter strong as the S&P 500 returned 5.9% and set its 43rd all time high for the year. The Nasdaq Composite and Dow Jones Industrial Average also posted solid returns for the quarter, as they returned 2.8% and 8.7%, respectively.
- The Federal Open Market Committee (FOMC) cut rates for the first time since the rate hiking campaign began in March of 2022. The benchmark lending rate was reduced by 50 basis points to a range of 4.75 – 5.00.
- Investors welcomed the FOMC’s larger-than-anticipated cut, and risk-on sentiment took hold in the final weeks of September. However, the upcoming U.S. election in November looks to add uncertainty and volatility to the markets as traders weigh the outcomes of differing policy positions.
Market Total Returns¹
Q3 2024 Market Review: US Equity
The US Equity market has shown resilience in the third quarter despite bouts of volatility triggered by concerns over the Federal Reserve’s monetary policy and broader economic slowdown. Investors embraced the rotation trade to smaller-cap and value-oriented equities to start the quarter as the preference to own securities that may receive a tailwind from a rate-cutting cycle took hold.
Market participants are recalibrating expectations following the Fed’s September rate cut, marking the first easing in four years. The reduction of rates signals that inflationary pressures are moderating, and with this cut, there is hope that the Fed will guide the economy towards a soft landing. The reaction from investors was positive, as risk-on sentiment took hold for the remainder of the month.
Size and Style Boxes
The trend of equity returns broadening out beyond the Magnificent Seven that took hold in the second quarter persisted for most of the third quarter, as Utilities, Real Estate, and Industrials led the way. The only sector to post a negative return for the quarter was Energy. Crude oil prices trended downwards for most of the quarter before slightly rebounding at month’s end. Recent projections from the International Energy Agency (IEA) are forecasting a slowing growth in demand as China’s rapid slowdown impacts demand growth.
S&P 500 Sector Returns²
Q3 2024 Market Review: International Equity
The third quarter was marked by diverging performances across international markets. Europe, in particular, displayed pockets of strength, led by countries like France and Italy. Germany’s industrial sector struggled due to its reliance on China and lagging adaptation to electric vehicle production. The European Central Bank (ECB) also cut interest rates in tandem with the Fed to stimulate growth. Inflation is trending downward, which should provide some tailwinds for regional consumer spending and corporate earnings.
Selected Developed Markets and Emerging Markets Returns³
However, risks remain. The Chinese economy, which many international markets rely on for growth, faces structural challenges. Despite ongoing stimulus measures, its property market woes and weak consumer confidence have yet to be resolved, limiting the potential for a robust rebound. On the other hand, Japan presents a mixed picture, with higher inflation and household spending under pressure, though corporate sentiment remains relatively positive.
International Equities present a mixed outlook as European stocks continue to be attractively valued, particularly in countries likely to benefit from recovering consumer confidence and declining inflation. However, uncertainty around China and the potential for further geopolitical disruptions remain significant risks.
Global Equity Valuations⁴
Q3 2024 Market Review: Fixed Income
The fixed income landscape experienced positive developments in the third quarter, with the Fed’s rate cut leading to a decline in yields across the curve. Inflationary pressures are easing, particularly in the US, and global growth forecasts continue to moderate, driving demand for bonds. The performance of US Treasuries has been particularly strong, with the 10-year yield falling as markets price in further rate cuts. Emerging market debt also gained momentum, supported by lower inflation in those regions and a favorable rate differential against US Treasuries. Fixed income remains an attractive asset class, especially for investors looking to hedge against equity market volatility.
Select Fixed Income Returns⁵
Q3 2024 Market Review: Election Influence and Portfolio Strategy
As the US heads into the presidential election cycle, it is essential to reiterate that long-term investors should remain focused on their strategic outlook rather than reacting to short-term political events. Historically, the impacts of presidential elections on markets have been limited. US stocks have trended higher no matter which party holds office. A balanced 60/40 portfolio has typically delivered positive returns in election years, which is on track to happen again in 2024.
Impact of U.S. Presidental Elections on Markets⁶
US markets have shown resilience through various administrations, with little correlation between political outcomes and long-term stock performance. We believe that the best approach for investors is to remain diversified and focus on asset classes and sectors that align with their long-term goals rather than making reactionary moves based on election results.
In Conclusion
Q4 2024 presents both opportunities and challenges across global markets. With the Fed and other central banks entering a rate-cutting cycle, we anticipate supportive conditions for equities and fixed income. However, volatility may persist due to geopolitical and political events.
- Market Cap Diversification: Diversifying across large-, mid-, and small-cap stocks is critical to managing risk and opportunity. While mega-cap tech companies have driven much of the recent market performance over the last few years, their concentration carries unique risks. In the third quarter, a rotation trade saw equity returns broaden into areas like small- and mid-cap stocks as well as value sectors, reinforcing the importance of maintaining diversification across market caps and investment styles to capture opportunities in shifting markets.
- Global Diversification’s Role: Diversifying across global markets provides exposure to regions at different points in the economic cycle, reducing concentration risk. While the US leads in growth, opportunities in Europe and Asia offer the potential for gains and greater balance, especially as monetary policy and economic conditions vary internationally.
- Fixed Income in Balanced Portfolios: Fixed income may play a vital role in generating income and providing stability, especially in uncertain markets. With central banks beginning to cut rates, bonds are likely to benefit from falling yields, and their lower correlation to equities may help to mitigate overall portfolio risk.
Want to know how this compares to Q2? Click here to check out our review from last quarter.
Each quarter, Collective Wealth Planning, with the help of our investment partner Geowealth, provides transparency and seek to clearly communicate what is driving performance for portfolios. However, as long-term investors we believe it is important to note that any single period (especially a period as short as a quarter) can be skewed or limited in informational value and stress the importance of the longer-term perspective on portfolio positions.
The information contained herein does not constitute investment advice or a solicitation by Collective Wealth Planning or GeoWealth Management, LLC. Investments are not guaranteed and are subject to investment risk, including possible loss of the principal amount invested. Past performance is no guarantee of future results. Information obtained from third parties is believed to be accurate but has not been independently verified.
Footnotes: Past performance is no guarantee of future returns. The graphs and charts in this commentary are for illustrative purposes only and not indicative of any actual investment. Index returns do not reflect any fees, expenses, or sales charges. It is not possible to invest directly in an index. Stocks are not guaranteed and have been more volatile than other asset classes. Historical returns were the result of certain market factors and events which may not be repeated in the future. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for clients. This material is intended for information purposes only, and does not constitute investment advice, a recommendation or an offer or solicitation to purchase or sell any securities. SOURCES: 1. Data from Morningstar. Returns over one year are annualized. 2. Data from Morningstar. 3. Data from Morningstar 4. Data from Morningstar 5. FactSet, Goldman Sachs, GIR. 6. Russell Investments
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