By Kurt Brown, CFA
Posted: 10/9/2024
The 3rd quarter ended on a strong note for most asset classes with the S&P 500 up +5.9%, developed international stock up 6.5%, emerging markets up almost +9% and global bonds posting the best quarter in quite some time with a 7% bump. JPMorgan’s Hugh Gimber pointed that “the parts of the stock market that had previously suffered most from high interest rates generally outperformed, with small caps delivering 9.5% and global REITs returning an impressive 16.2%.” This was partially fueled by the Federal Reserve’s recent policy shift to start lowering interest rates.
Even though many risks have been dominating the headlines such as Middle East tensions, the Russian Ukrainian war, two major hurricanes, port strikes and the upcoming election, markets have been resilient to these and have continued chugging along.
If we dig a little deeper into the US returns, we’ve noticed a shift in stock leadership. The famed Magnificent 7 stocks have led the way for several years and quickly jumped to account for over 30% of the S&P 500 Index as shown below.
These 7 companies generated almost half of the total return throughout the first 6 months, but only accounted for 0.5 percentage points of the total 5.9% Q3 total return. A much less glitzy group of sectors—including utilities, materials and industrials—led the way in the 3rd quarter. This is a healthy development to see broader market growth, rather than just a handful of stocks driving the majority of the performance.
We’d be remiss if we didn’t comment on the election less than a month away. Drew’s September Viewpoints showed the dangers of shifting your portfolio based upon your political views, but GW&K’s William P. Sterling, Ph.D said it best with, “As election rhetoric intensifies and market volatility rises, investors would be wise to anchor themselves to time-tested principles rather than political projections. The data consistently shows that maintaining a well-diversified portfolio aligned with your long-term goals and risk tolerance is a far more reliable strategy than attempting to outsmart the market based on electoral outcomes. While it’s natural — and even civically important — to have strong political convictions, the voting booth and investment account serve different purposes. By keeping your investment strategy above the political fray, you position yourself to navigate market cycles and capitalize on long-term growth, regardless of which party claims victory in November. In the grand sweep of market history, presidential terms are mere chapters in a much longer story of economic progress and innovation. Successful investors are those who remain focused on this broader narrative, resisting the temptation to rewrite their financial plans with every electoral plot twist.”
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