Market Insights: Third Quarter 2024

Raymond Eaton |

Stocks Show Resilience In 3rd Quarter

 

As we close the books on the third quarter of 2024, here's a comprehensive review of market developments and our outlook for the months ahead:

 

Market Overview

 

The third quarter of 2024 delivered a solid performance for major market averages, despite some bumps along the way. The S&P 500 advanced by 5.53%, marking its fourth consecutive quarterly gain.  International markets also showed strength, with the MSCI Emerging Market Index gaining 7.7% and the MSCI EAFE Index returning 6.8%, both outperforming U.S. stocks for the first time since Q4 2022.

 

In the fixed income arena, we saw exceptional performance. The Bloomberg US Aggregate Index advanced 5.20%, marking the second-best quarter for bonds in 29 years.

 

Key Developments

The quarter's headline event was undoubtedly the Federal Reserve's decision to cut interest rates by 0.50% - the first rate cut since the COVID crisis. This move came as the Fed shifted its focus, with unemployment rising to a 33-month high and inflation moving back towards target.

 

In global markets, the following actions have been part of a broader trend of central banks easing: 

  1. The European Central Bank cut its target rate for the second time in just over three months.
  2. The People's Bank of China introduced its most significant stimulus package since the 2008 financial crisis.

These coordinated actions provided a substantial tailwind for global markets.

 

The move into international stocks was not the only notable shift in market leadership. Technology stocks, which had been dominant for an extended period, began to underperform in the third quarter. Conversely, more defensive and interest rate-sensitive sectors gained favor. Value stocks and small-cap names led returns, while growth lagged. 

 

While there were signs of economic softening, particularly in the labor market, overall economic growth remained strong. Consumer discretionary spending was robust, although it showed signs of slowing down towards the end of the quarter. Something we will continue to monitor closely.


The quarter was also marked by periods of heightened volatility, influenced by evolving economic conditions, geopolitical factors, and the anticipation of a contentious U.S. election year.

 

These developments paint a picture of a quarter characterized by significant shifts in market dynamics, driven largely by changes in monetary policy and evolving economic indicators. The market showed resilience overall, but with notable changes in sector leadership and investment trends.

 

Outlook for Q4 2024: Opportunities and Challenges

 

As we enter the final quarter of 2024, we maintain a cautiously optimistic outlook. The Fed's rate cuts are expected to stimulate economic growth, but the market's response in the coming months will be critical. Historically, the S&P 500 has gained an average of 23% in the 12 months following the first rate cut when a recession is avoided.

 

We anticipate continued volatility as investors analyze each economic data point for clues about the economy's trajectory.

 

As we look ahead to the final quarter of 2024, it's important to consider both the potential opportunities and challenges that may impact market performance and our investment strategy.

 

Potential Opportunities

  1. Continued economic stimulus: The Fed's recent rate cut, along with similar actions by other central banks, could provide ongoing support for economic growth and corporate earnings.
  2. Sector rotation: We may see a broadening of market gains beyond large tech companies. Sectors like financials, commodities, real estate, and small-cap stocks could benefit from the new rate environment. 
  3. Improved corporate earnings: Analysts expect corporate earnings to grow by 10.2% this year, which could drive further stock market gains.
  4. Productivity gains: Recent improvements in U.S. productivity may foreshadow continued strong economic growth.

Potential Challenges

  1. Market volatility: The upcoming presidential election and ongoing economic uncertainty could contribute to increased market fluctuations.
  2. Valuation concerns: Much of the upside from rate cuts may already be priced into the market, potentially limiting further gains in the short term.
  3. Labor market concerns: The recent uptick in unemployment from 3.7% to 4.2% warrants attention, although it remains historically low.
  4. Inflation risks: While inflation has slowed, it's still slightly above the Fed's 2% target, which could impact future monetary policy decisions.
  5. Recession fears: Some analysts worry that the Fed's aggressive rate cuts signal concerns about a potential economic downturn.

 

With the new rate environment upon us we will continue to seek out opportunities for investments in rate sensitive areas while being mindful of the potential challenges that lie ahead.  

 

As always, we encourage you to reach out if you have any questions about our strategy or if you'd like to discuss how these market dynamics might impact your individual financial plan.