Quarterly Commentary, Q3 2024

The third quarter was a positive quarter overall, though it started ominously with a failed assassination attempt of a presidential candidate. It ended on a high note with the Fed easing interest rates by 50 basis points, driving markets higher. The narrowness of the bull market has now turned to broad participation. Equities delivered in the mid- to high-single digits. International equities, including emerging markets, had a robust quarter. Surprisingly, China eased monetary policy, creating strong appreciation in their equities. Small caps globally also delivered results exceeding their large cap brethren domestically and abroad. Fixed income benefited from lower interest rates, and bonds were up in the low single digits.

The S&P 500 was up 5.89%, while the Russell 2000 was up 9.27%. Internationally, EAFE (Europe, Australasia & the Far East) was up 7.26%, while emerging markets were up 8.72%. Real Estate Investment Trusts (REITs) had an outstanding quarter, up 15.19%. Bonds did well. The Fed reducing rates benefited all maturities as interest rates decreased increasing prices. The Bloomberg US Agg Bond index was up 5.20% for the quarter.

The Fed has a dual mandate, which is to keep inflation at a 2.0% target and maintain full employment. For two years, the Fed has focused on reducing inflation by slowing the economy with higher interest rates. Inflation is down from 9.1% to 2.5%, consequently, they are now more concerned with unemployment as it has been rising. The consensus opinion is that the Fed is expected to continue to reduce interest rates to lower borrowing costs and drive economic activity. The reduction in interest rates and easing of financial conditions (increasing money supply) is historically an excellent time to invest in equities and fixed income. In addition, today, company profits are growing at an accelerating pace.

Earlier this year, volatility was at below-average levels. Today, market volatility is at average levels and we would expect more volatility to come. We have an unusual presidential election next month, the war in the Middle East is heating up, and there are always the unknown “surprise” events. Regarding the election, the natural question is, “How should I protect myself from an adverse outcome?”. We have read lots of research and analysis, all with the same conclusion: volatility tends to increase as we get closer to the election. Still, the markets quickly settle and continue to appreciate at their natural measured pace regardless of which party is elected. Be assured that during bouts of volatility, your high-quality bonds, including Treasuries, should function as a ballast and even appreciate if we see a “flight to quality”. In the final analysis, having a broadly diversified equity portfolio with high-quality bonds delivers consistent appreciation over the long run.

As always, if you have any questions or would like to discuss your investments, please reach out. Your Resource Consulting Group advisor is here to help.

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