Markets were highly volatile in the third quarter due to political turmoil, a carry-trade unwind, and economic uncertainty. However, Federal Reserve rate cuts and strong corporate earnings ultimately helped ease these concerns, pushing the S&P 500 to new all-time highs, up +20.6% year-to-date (‘SPY’ ETF Proxy) on a strong quarterly gain of +5.8%.

Investor expectations for falling interest rates were a major influence on markets. Small-cap stocks outperformed large-caps for the first time in 2024 as investors moved towards more economically sensitive small-caps, which benefit from lower borrowing costs. Value stocks also outperformed growth stocks, although both saw positive returns. This shift was driven by a rotation from the technology sector, which dominates growth funds, to more economically sensitive sectors, like financials, industrials, and utilities.

International markets outperformed the S&P 500 given tech sector headwinds. Foreign developed markets rallied +7.2% (‘VEA’) on expectations of additional rate cuts from the European Central Bank. Emerging markets also outperformed, boosted by the announcement of Chinese government stimulus measures later in the quarter.

In fixed income markets, the Bloomberg Barclays US Aggregate Bond Index marked strong returns of +5.6% (‘AGG’) due to falling inflation, mixed economic data, and anticipation of aggressive rate cuts. Longer duration bonds outperformed shorter durations as investors sought longer-term yields amidst falling inflation and weaker than expected labor market data. However, shorter duration bonds did also post positive returns.

With the Fed’s rate-cutting cycle underway, focus for the final quarter of 2024 will shift to economic growth and politics, offering potential periods of elevated volatility. The Fed’s shift has helped investors overlook weak economic reports, but markets may become more sensitive to any disappointing data that does not support the “soft-landing” premise. The upcoming US elections could also influence market volatility. Finally, geopolitical risks in Eastern-Europe and the Middle-East remain elevated. Despite these uncertainties, market performance has been strong in 2024, and the fundamental outlook remains positive. As we head into the fall, we remain committed to helping you navigate this environment to achieve your long-term investment goals.

Source: Index proxies based on dividend adjusted ETF time-series data from CSI Data, Inc. Data considered dependable, but not guaranteed. Past performance is no guarantee of future performance or profitability. Statements herein do not constitute individual investment advice – please speak with your advisor about your particular situation.