Q3 2024 Market Review
Market participation broadened materially in the third quarter. Rather than being driven by a few large technology companies, the U.S. market was pushed higher by smaller companies and by a broader set of sectors. The Federal Reserve decided to slash interest rates to head off weakness in the labor market, supporting the financial markets and pointing to a soft landing for the economy. Below you can see various market benchmarks, ranked from most aggressively-positioned to least.
Broadening Market Participation
In the first half of 2024, the S&P 500’s returns were narrowly driven, with only 25% of the index outperforming. In Q3, over 60% of S&P 500 companies outperformed the overall index. Sectors most sensitive to interest rates like utilities and real estate performed better after the Fed cut interest rates more than anticipated.
While international markets performed well in the quarter, we continue to be significantly underweight relative to our benchmarks. Over the last 10 years, U.S. companies have been able to generate earnings growth at nearly double the rate of their European counterparts, with much less volatility. While international companies trade at a significant discount to U.S. stocks, there isn’t enough evidence that there will be superior growth to justify allocating more to international equities at the current time.
A Wall of Worry
It’s said that stocks consistently climb a “wall of worry.” There’s always something to be concerned about that could be the next market-shaking event right around the corner. Currently, we’re facing a number of worries:
A recession could play out in coming quarters, caused by the Fed’s prolonged rate-hiking cycle that just came to an end
Inflation picks up, limiting the Fed’s ability to cut rates in 2025
The labor market continues to weaken
Despite these concerns that have been in the background for months (among others), stocks have continued to outperform expectations. Instead of focusing on what could go wrong, it can help to be optimistic and focus on the positive. Here are a couple things working in the U.S. economy’s favor at the moment:
The U.S. consumer continues to be resilient; in the face of above-average inflation, personal balance sheets remain strong.
Investors are expecting large companies’ profits to grow at 15% over the next year; even if that’s an over-estimation, continued double-digit earnings growth is a positive trend.
Next Week…
I would be remiss if I didn’t make some comments on the election coming up on November 5th. Early voting is underway, and the world is watching. While no one knows who will win, many are speculating about what will happen to financial markets if either candidate wins, usually saying that things will be much better if their preferred person becomes President, and markets will be under significant pressure if the other becomes President. In my experience observing markets, in the near-term, with a known range of possible outcomes surrounding an upcoming event, results are generally “baked into” stock prices leading up to the event. Because Vice President Kamala Harris and former President Donald Trump have been in power, investors know generally what to expect from each. Once all is said and done on Tuesday, and we know who controls the White House and Congress, market participants will be sorting out the new set of possible outcomes that will play out over the coming years, and different sectors and companies will be re-evaluated through that lens.
Conclusion
Trying to win on short-term market bets isn’t a winning strategy. Allocating and managing your resources must be done with wisdom and long-term thinking in mind.
With you for the long haul,
Carter Ellis, CFP®
Founder
Disclosures:
Past performance is no guarantee of future success. This material is for informational use only and should not be considered investment advice.
The opinions expressed are those of Guardian Wealth Advisors, LLC. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Forward looking statements cannot be guaranteed. Investing involves risk. Principal loss is possible.
Investment advisory services offered though Guardian Wealth Advisors, LLC D/B/A Valley Peak Financial. Guardian Wealth Advisors, LLC ("GWA") is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about GWA's investment advisory services can be found in its Form CRS or Form ADV Part 2, which is available upon request. GWA-24-83
