North River Wealth - 3Q 2024 Market Update
It’s hard to believe we are in the final quarter of the year. Thanksgiving and Christmas are right around the corner, but there are still a few things to get to before we start packing on the pounds over the holidays.
Some things are the same: the leaves are changing, the country remains politically divided, and equity markets continue to push towards all-time highs.
Some things are different: we’re on the cusp of electing either our first female President or the oldest in U.S. history, interest rates are coming down, and Pitt football is 5-0.
Our hearts and prayers go out to our clients and friends impacted by the devastating storms across western North Carolina and the southeastern U.S. during this difficult time.
Market Returns
Does anyone remember what happened on August 5th? It’s easy to forget now, but that day the S&P 500 dropped 3% after a disappointing jobs report, sparking fears of a market crash. However, the markets proved their resilience, with the S&P 500 ultimately finishing up 6% for the quarter and 22% for the year.
In a shift from earlier in the year, value-oriented stocks outperformed growth and tech stocks this quarter. Utility stocks led the way as the best-performing sector in the S&P, while energy stocks lagged. Smaller U.S. companies, represented by the Russell 2000, enjoyed a great quarter finishing up over 9%, putting the index up double-digits for the year.
International markets also enjoyed strong returns during the quarter. The MSCI EAFE, which includes stocks from developed countries in Europe and Asia, was up over 7%. Emerging markets stocks rose nearly 9% this quarter, bringing their total gain for the year to 17%. The Chinese economy rebounded strongly in September as the powers that be in Beijing implemented an economic stimulus package in a hope to awaken the struggling economy. During the last five trading days of the quarter, China’s benchmark index (CSI 300) was up over 25%.
Interest rates fell during the quarter, with the 10-year Treasury bond yield moving from 4.36% to 3.77% boosting overall returns for the bond market. Interest rates and bond prices have an inverse relationship, so when interest rates fall, that is typically good for bond returns. The overall U.S. aggregate bond market finished a strong quarter up over 5%.
Sources: BlackRock, MSCI
The Fed Cuts Short-Term Rates
Despite markets at all-time highs, the Fed expects the economy to weaken and wants to be ahead of the curve so to say. The Fed lowered short-term interest rates by 0.5% at its September meeting. It was the first interest rate cut since March 2020.
How does this impact you directly? There are a few ways.
- Lower returns on cash investments: With reduced interest rates, the yield on cash holdings will drop. This may prompt you to explore higher-return opportunities, such as stocks or bonds.
- Encouraged consumer spending and mortgage opportunities: The rate cut is designed to spur consumer borrowing and spending, which could positively affect the mortgage market. This is good news for those looking to buy or refinance a home.
- Potential boost for smaller companies: Lower borrowing costs could benefit smaller U.S. companies, which are typically more sensitive to interest rate changes. This may lead to a broader range of market returns, beyond the large-cap, tech-driven growth we've seen in recent years.
Further rate cuts are expected in the upcoming November and December meetings, and likely extending into 2025. It will be interesting to watch, especially with the Fed’s November meeting occurring just two days after the U.S. elections. Speaking of which…
November 5
Living in Pennsylvania, a key swing state in the presidential election, we're bombarded with a nonstop stream of political ads from both parties. Needless to say, November 6th can’t come soon enough. Election years are known for unpredictability, and this one’s no exception—especially with a mid-year candidate shake-up (though, technically, Joe Biden remains the President of the United States).
Amid all the election noise, only a handful of states will truly decide the outcome: Arizona, Georgia, Michigan, Nevada, North Carolina, Pennsylvania, and Wisconsin. Expect media coverage to focus heavily on these battlegrounds and be prepared for a long election night where the winner may remain unclear for days to come.
No matter the result, market volatility is likely to spike—markets dislike uncertainty. However, as the chart below shows, staying fully invested through the ups and downs tends to be the best long-term strategy. Rest assured, we are not making any knee-jerk decisions based on the election outcome.
Last 70 years, $1,000 invested in 1953 depending on which party held presidency
Source: BlackRock, Morningstar, as of December 31, 2023. Party presidency period determined by party presidency inauguration to next opposing party presidency inauguration. Stock market represented by the S&P 500 Index from 1/1/54 to 12/31/23. Past performance does not guarantee or indicate future results. Index performance is for illustrative purposes only. Index performance does not reflect any management fees, transaction costs or expenses. You cannot invest directly in an index.
Authored by Stephen Blahovec and Michael Rausch of North River Wealth Advisors. We are an independent, fee-only financial planning and investment management firm located in Pittsburgh, PA servicing clients locally and across the country. To learn more, contact us here.
This content is developed by North River Wealth Advisors from sources believed to be providing accurate information. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.