3rd Quarter 2024 Commentary

In our quarterly Economic & Market Update Newsletter, we separate the relevant from the noise, to bring you timely content that helps you on the path to and through retirement! 

3rd Quarter 2024 Commentary

Stock Market Update

Stocks continued their progress in the third quarter with the S&P 500 Index returning 5.9%, bringing year-to-date gains to over 20%. While much of the progress stocks made in the first six months was due to the magnificent seven, a major shift has occurred since early July. Companies most sensitive to interest rate movement, like financials, industrials, utilities, and real estate, have started to outperform technology. The market seems to have anticipated lower interest rates and a new Fed interest rate cutting cycle.   

While stocks are trading slightly above their average P/E multiple and are by no means cheap, earnings have been accelerating and productivity is expanding at a brisk pace (up 2.5% in the second quarter). Earnings are expected to rise 10.1% in 2024 and even more in 2025, up 15.4%. We are already seeing the effects of the AI revolution and its impact on business, hiring, and efficiency.  

Economic Update

Another factor helping business has been the incredible resiliency of the U.S. economy. Despite a weak housing market, manufacturing woes and high interest rates, GDP continues to surprise economists. 3rd quarter GDP is now expected to rise close to 3%.  

Strategy Update

The Fed has started a new easing cycle to maintain stable economic growth. It now appears they are embarking on a 100-125 basis rate cut over the coming few months. With interest rates heading lower, that should help stimulate housing and other interest rate sensitive businesses. Additionally, the AI revolution is still in its infancy, so demand should only be accelerating for data centers, chip makers, software, and related tech companies.  

In anticipation of the Fed’s rate cuts, we decided to extend maturities in our fixed income portfolios and lock in attractive longer-term rates now at the start of the Fed’s rate cutting cycle. While the money market continues to provide a 4%+ plus rate of return, we expect that it will drop to under 4% in the coming months. We believe extending bond maturities now is a wise strategy in the face of these coming lower rates.   

In our client’s stock portfolios, we remain focused on dividend-growing stocks, as well as using the opportunity of multiple new all-time stock market highs to lower stock allocations, where appropriate. 

Government Impact

On a final note, we are now entering the final stretch of the Presidential election, and many investors wonder how their portfolios will be impacted by the outcome. The political landscape does have an impact on taxation, regulation, policy, and the economy, but historically, there is little to suggest a meaningful correlation between stock market performance and the outcome of the election. We recommend that you avoid making emotional decisions with your investments and stick to your long-term investment strategy instead of focusing on shorter-term political outcomes.  

The Bottom Line…

Stocks continued to climb to all-time highs in the 3rd quarter as the Fed began a new easing cycle and the market anticipated lower interest rates. Earnings and productivity remain strong, the economy remains resilient, and the AI revolution is just starting. Don’t make emotional decisions based on the coming presidential election.