Easing inflation, mostly stable employment, good economic growth, and an accommodative Fed are all bullish indicators for a stock market to perform well and that is what we saw during 2024 Q3; fittingly, with the S&P 500 reaching an all-time high at quarter-end! Based on easing inflationary measures, the Fed initiated its well-anticipated Fed Funds rate cut on September 20, 2024. Though the 50 basis point cut was larger than expected, the Fed assured markets that the large cut was simply a move away from the previous restrictive monetary conditions and was not indicative of any anticipated crisis; further cuts likely would be more moderate.
As expected, the markets rallied on the news and recovered nicely from a mild sell-off during late-July/early-August. Separately, China announced robust stimulus measures into its economy in mid-September prompting a large rally in that and other emerging markets.
Notably, the Fed actions had an impact on the broader markets as we saw most diversifying asset classes rally and overtake the S&P 500 during Q3, though still lagging over the YTD horizon (see table below). During Q3, the S&P 500 (IVV, +5.8%) still had a robust return but was surpassed by its diversifying brethren small- (SCHA) and mid-cap (SCHM) equities with 8.9% and 7.2% returns, respectively. High dividend equities, represented by iShares Select Dividend ETF (DVY, +12.9%) rallied, too, demonstrating more broadening of the rally. International (SCHF, +7.0%) and emerging market equities (SCHE, +9.9%) followed suit with outsized returns.
Fixed income, on cue from the Fed actions, generated good returns during Q3 as short rates eased and credit spreads narrowed with recession fears melting away. Core bonds (SCHZ, +5.3%) and high yield bonds (HYG, +5.7%) buoyed as shorter bonds (SLQD, +3.4%) kept pace.
Most of my blog posts during Q3 had a bullish bias and we are happy that markets have responded positively to economic trends per my July 26 blog post, Small Caps Rising?:
If you asked us what we think the market will do we would say “Beats Me!”, but most client accounts would have some exposures to the asset classes that are leading the markets at most any time.