In the third quarter, markets were volatile due to political uncertainty and concerns about economic growth, but Fed rate cuts and strong earnings helped the S&P 500 reach new highs. After early gains, volatility increased as investors shifted from tech stocks to sectors like utilities and financials, driven by inflation declines and expected rate cuts. A brief August selloff followed weak job data, but the Fed’s rate cut in September boosted stocks. Political factors, including the presidential election, also affected market sentiment, with polls favoring Kamala Harris as Biden withdrew from the race.
Third Quarter Performance Review
Falling interest rates and bond yields were key drivers of market performance in Q3. Small caps outperformed large caps as investors shifted to more economically sensitive stocks that benefit from lower borrowing costs. Value stocks outpaced growth, driven by a rotation from tech to sectors like financials, industrials, and utilities. Nine of the 11 S&P 500 sectors posted positive returns, with utilities and real estate leading due to lower yields. Tech and energy were the only laggards, with energy hit hardest by concerns over global growth, particularly in China.
| US Equity Indexes | Q3
7/1-9/30 Return |
2024 YTD |
| S&P 500 | 5.89% | 22.08% |
| DJ Industrial Average | 8.72% | 13.93% |
| NASDAQ 100 | 2.12% | 19.97% |
| S&P MidCap 400 | 6.94% | 13.54% |
| Russell 2000 | 9.27% | 11.17% |
Source: YCharts 1/1/2024 – 9/30/2024
International markets outperformed the S&P 500 in Q3, with tech sector weakness weighing on U.S. returns. Developed markets rallied, driven by expectations of rate cuts from the European Central Bank and other global central banks. Emerging markets also outperformed the S&P, boosted by Chinese government stimulus measures announced in late September.
| International Equity Indexes | Q3
7/1-9/30 Return |
2024 YTD |
| MSCI EAFE TR USD (Foreign Developed) | 7.33% | 13.50% |
| MSCI EM TR USD (Emerging Markets) | 8.88% | 17.24% |
| MSCI ACWI Ex USA TR USD (Foreign Dev & EM) | 8.17% | 14.70% |
Source: YCharts 1/1/2024 – 9/30/2024
Commodities had mixed performance in Q3, with overall moderate losses due to a sharp decline in oil prices driven by reduced global demand and weak Chinese data. In contrast, gold rallied to a new all-time high, fueled by geopolitical uncertainty and a weaker dollar.
| Commodity Indexes | Q3
7/1-9/30 Return |
2024 YTD |
| S&P GSCI (Broad-Based Commodities) | -5.26% | 5.23% |
| S&P GSCI Crude Oil | -16.44% | -4.74% |
| GLD Gold Price | 13.26% | 27.53% |
Source: YCharts/Koyfin.com 1/1/2024 – 9/30/2024
In Q3, the Bloomberg Barclays US Aggregate Bond Index posted strong returns due to falling inflation and mixed U.S. economic data, with expectations of aggressive Fed rate cuts. Longer-duration bonds outperformed shorter ones as investors sought higher long-term yields. Both investment-grade and junk bonds saw gains, but investors favored investment-grade bonds for their safety amid economic uncertainty.
| US Bond Indexes | Q3
7/1-9/30 Return |
2024 YTD |
| BBgBarc US Agg Bond | 5.20% | 4.45% |
| BbgBarc US T-Bill 1-3 Mon | 1.36% | 4.08% |
| ICE US T-Bond 7-10 Year | 5.74% | 4.26% |
| BbgBarc US MBS (Mortgage-backed) | 5.53% | 4.50% |
| BbgBarc Municipal | 2.71% | 2.30% |
| BbgBarc US Corporate Invest Grade | 5.84% | 5.32% |
| BbgBarc US Corporate High Yield | 5.28% | 8.00% |
Source: YCharts 1/1/2024 – 9/30/2024
Fourth Quarter Market Outlook
With the Fed’s rate cuts behind us, attention for Q4 shifts to economic growth and politics, both likely to cause volatility. Markets could react more strongly to weak economic data, especially in the labor market. With the S&P 500 near record highs, recession fears could spark market instability if data disappoints. The upcoming election may also heighten volatility, especially in sectors sensitive to policy changes like energy and finance. Geopolitical risks, such as conflicts in Ukraine and the Middle East, remain potential market disruptors. Despite these uncertainties, the market has been resilient, with strong 2024 performance and momentum, supported by data pointing to a soft landing. Historically, the S&P 500 tends to perform well regardless of political control. Expect some short-term volatility, but overall market fundamentals are positive.
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