Friends,
Despite an unsurprising increase in volatility during the third quarter, markets were strong. The U.S. stock market hit record highs and is up over 20% for the year. Market breadth increased somewhat beyond the Magnificent 7 and all sectors of the S&P 500 were up for the year. In addition, the bond market has generated a positive return of approximately 4% year to date.
During the month of September, the Federal Reserve cut its key interest rate by 50 basis points (1/2%); the first interest rate cut since the beginning of the pandemic in March of 2020. While GDP growth is still positive and inflation has come down to the 2-3% range, the Fed sees cracks in the economy: the labor market has weakened in recent months and there are concerns about the health of the American consumer. Credit card debt is high and consumers, particularly low to middle income consumers, have not seen their wages keep pace with the cost of living over the last few years. The Fed is attempting to negotiate a “soft landing” by normalizing interest rates while avoiding a recession. The jury is out but sentiment and markets seem to be pricing in a successful soft landing.
There are risks that remain for investors. Any disruption to the soft-landing scenario would almost undoubtedly have a negative impact on equity markets. In addition, we have heightened geopolitical tensions, particularly in the Middle East, and an election only a month away. We haven’t seen a stock market correction in 2024, so it still wouldn’t be surprising to see a selloff or correction in the coming months.
Despite the risks outlined above, we remain optimistic about the future. We like the macroeconomic backdrop of declining interest rates, moderating inflation and potential productivity increases through advanced technologies such as Artificial Intelligence. We’ve read a great deal of research regarding the impact of elections on financial markets and have come to the conclusion that the winning candidate or party has historically had minimal impact on long -term returns. We agree with the saying to “vote at the polls, not with your investment dollars.”
Follow the link below for more color on the 3rd quarter economy and financial markets:
Quarterly Market Insights | Q3 2024 (childscompany.com)
Let us know if you have any questions or if we can do anything for you. As always, we appreciate your support and encouragement.
Matt and Andrew