As we wrap up the third quarter of 2024, we’re pleased to report that the market has continued to exceed expectations, especially in what are historically two of the worst months of the year: August and September. Despite this, equities have shown resilience and growth, making this quarter stronger than anticipated.
Corporate Earnings and Economic Outlook
Corporate earnings have been a major driver behind this momentum, posting a 10% increase year-to-date, which is significantly better than analysts projected. This performance has further strengthened the argument that the economy has avoided a recession, and we may indeed be seeing the successful "soft landing" that many thought was impossible.
Federal Reserve Rate Cut: A Catalyst for Growth
One of the biggest headlines this quarter was the Federal Reserve’s decision to cut interest rates for the first time since the pandemic hit in 2020. This move has been a catalyst for both stocks and bonds, helping to fuel the market’s bullish behavior. The bond market, in particular, performed well, as we expected, given the favorable shift in interest rate policy.
Unemployment and Inflation Remain Favorable
On the employment front, unemployment remains healthy at 4.1%, which is considered excellent by most standards. This continues to support consumer spending and overall economic strength. Meanwhile, inflation continues its steady decline from the peak of 9.1% we saw back in June 2022. Today, inflation sits at a much more manageable 2.5%, providing further evidence of a stable economic environment.
Market Outlook: Bull Market Continues
Looking ahead, we continue to believe that October 12, 2022, marked the cycle low for the markets, and that we are now firmly in a bull market. Cash, which had been outperforming for much of the past year, has underperformed fixed income over the last 12 months as rates have started to come down, benefiting bonds. We expect this trend to continue as the interest rate environment becomes more favorable for fixed income investments.
Election Year Concerns: Market Resilience
As we approach an election year in 2024, many clients have expressed concerns about potential market volatility. Historically, however, election years have been positive for markets, regardless of the outcome. In fact, the market averages a return of 11.57% during election years, compared to 10.1% in non-election years. We don’t foresee any reason for alarm based on historical data.
Investing at All-Time Highs: A Better Strategy Than It Seems
Another common concern is the fear of investing when the market is at all-time highs. However, history shows that buying at a market high often leads to better performance over 1-year, 3-year, and 5-year time horizons compared to buying on other days. In short, waiting for a pullback could mean missing out on gains, and we encourage investors to stay disciplined in their long-term strategies.
Conclusion
In summary, this quarter has been one of unexpected strength, both in terms of equity performance and economic fundamentals. We remain optimistic about the road ahead, with the Fed’s policies supporting growth and inflation continuing to cool. As always, we’ll continue to monitor the market closely and make adjustments as necessary to ensure your portfolios are positioned for success.
Thank you for your continued trust, and we look forward to navigating the rest of the year with you.