Quarterly Market Review 2024 Q3

Q3 Quarterly Market Snapshot

The third quarter of 2024 delivered healthy gains across most major asset classes, despite multiple bouts of market volatility. U.S., international, and emerging market stocks were all up in Q3, as were real estate, U.S. and global bonds, with specifics in the chart above. U.S. stocks built on a strong first half of the year, with many market indices at or close to record levels as the third quarter neared an end.  

Notably in the bond markets, with inflation cooling globally, the Bank of England cut rates by 0.25% in August, followed in September by the Fed reducing rates by half a percentage point and the European Central Bank making a second rate cut, bringing interest rates to 3.5%. 

The decline in interest rates gave the stock market a boost, particularly industries and companies most impacted by rates, like real estate, and bonds benefitted from the rate cuts as well. Emerging markets (and China specifically) delivered strong returns in part due to lower rates, as well as in response to the Chinese government’s stimulus measures.  Here are a few interesting data points on Q3:

• U.S. stocks are up 33% year-over-year.

• The U.S. stock market weathered a sell-off in August to end Q3 up 6%.

• The S&P 500 hit record highs, while the tech-heavy Nasdaq lagged the broader market.

• Value stocks outperformed the U.S. market by nearly 3% (up 8.95%), and outperformed growth stocks by 7% - although growth is still up more than 20% year-to-date.

• The Fed lowered interest rates by a half percentage point, its first reduction since April 2020. The Federal funds rate range is now 4.75%-5%.

• The yield curve, after being inverted for more than two years, has un-inverted and is back to a normal yield curve.

• Oil prices dropped 18.7%, one reason inflationary pressures came down.

  
  

Below is a snapshot of key top-line economic indicators:

U.S. Stocks

U.S. stocks have trended up for much of the year, aside from a brief downturn in April, but early August and early September brought spikes in volatility. The market recovered losses both times and ended the quarter up 6%, buoyed by the Federal Reserve’s move to start cutting interest rates. The first rate cut of 0.5% in September changed the tides, with a turnaround most pronounced for stocks that had suffered most from high interest rates. The S&P 500 hit record highs, while tech stocks (and the tech-heavy Nasdaq), which had had led the U.S. rally in the first half of the year, were a drag on the U.S. market returns in Q3. Market leaders were value and small cap stocks, which posted 8.95% and 9.5% returns respectively, and global real estate delivering impressive 16% gains. Energy was down 2.8%.

International Stocks

The European economic recovery continues to be sluggish, with stock markets posting minor gains – the U.K. was up 2.3% and Europe (excluding U.K.) was up 1.6%. Asia, excluding Japan, was the top performing geography globally, up 10.6% in Q3. While most of the quarter was uneventful, an emerging markets rally came late in the quarter, buoyed by announcements of new stimulus measures in China, sending a clear message of support for the Chinese economy and markets. Japanese stocks, however, fell 4.9% in the quarter, due to rising interest rates and subsequent currency appreciation.

Fixed Income

Fourteen months from its last interest rate hike, the Federal Reserve kickstarted its efforts to lower the Federal Funds rate, cutting rates by half a percentage point to a range of 4.75%-5% in September. It was the first rate cut since March 2020’s COVID-related market turmoil. The move came after higher unemployment reports and inflationary pressures easing with inflation hitting its lowest level since 2021. The market has priced in the anticipation of more cuts through the end of the year and into 2025 (current expectations are a 0.25% rate cut in November).

The Fed cutting rates led to a bond market rally in the third quarter, with the U.S. bond market up 5.2% and U.S. Treasuries delivering the longest monthly winning streak in three years. As U.S. Treasury yields decreased across the curve, the 10-year yield rose above the 2-year, which normalized the yield curve (a graphical representation of bond yields across different maturities). The reverse—a yield curve inversion—had been the case for over two years.