For the third quarter (July 1–September 30), the S&P 500 posted a solid gain of 5.9%. For the first time in a long time small cap, international and emerging market stocks outperformed the S&P 500 with gains of 9.4%, 7.3% and 8.7% respectively in the Russell 2000, MSCI EAFE and MSCI Emerging Market indices. The yield on the 10-year U.S. Treasury note also showed movement, falling from 4.48% to 3.81%. Year-to-date, the S&P 500 has climbed an impressive 22.1% and global stocks (MSCI ACWI) an impressive 18.7%, while the yield on the 10-year Treasury has dropped by 14 basis points.
The Federal Reserve finally ended its game of “Will they or won’t they?” with the markets on September 18, when they made their first rate cut since beginning their aggressive hikes in March 2022. Interest rates dropped by half a percentage point, from a range of 5.25–5.5% down to 4.75–5%, signaling a shift in their long-standing inflation-fighting stance.
Inflation has been the main character in the market narrative for the past two years. With the Consumer Price Index (CPI) and Producer Price Index (PPI) showing signs of cooling off, the market has kept a close eye on the Fed’s next move. The key question: Can the Fed bring inflation under control without steering the U.S. economy into a recession? For much of 2024, market sentiment has moved with every twist in this ongoing drama, with concerns rising and falling based on whether the Fed appeared to be on track.
In mid-Q3, employment data triggered new fears that the Fed may have waited too long to begin cutting rates, leading to a temporary market dip. However, as the feared recession failed to arrive and with a larger-than-expected rate cut, equity markets bounced back.
Looking ahead, analysts will continue to scrutinize the data for clues about the Fed’s next steps. Any signs of a weakening economy could put downward pressure on the markets, while an economy that’s “too strong” could cause markets to worry that future rate cuts are less likely—a classic case of good news being bad for stocks in the short term.
And we can’t ignore the geopolitical and environmental risks on the horizon. The presidential election, ongoing conflicts in the Middle East and Ukraine, and the destructive aftermaths of Hurricane Helene, Hurricane Milton are all variables that could impact the markets in ways that are impossible to foresee.
Given this backdrop, it’s crucial to stay focused on time-tested investing principles: build and maintain a well-diversified portfolio, align your asset mix with your financial goals and risk tolerance, rebalance regularly, and don’t let short-term market noise distract you from your long-term objectives.
At Bondurant Investment Advisory, we believe every client is unique, which is why we provide tailored solutions designed to meet your specific needs. As fiduciaries, we’re committed to putting our clients’ best interests first.
