Market Commentary - October 2024
We hope you had a wonderful summer, and that you are having an enjoyable start to the fall season. In this newsletter, we will provide perspective on the transitioning economy and the interest rate environment. We will also outline strategic planning items to consider as we engage in year-end planning with you.
Markets & Economy
We’ve yet to experience the typical 10% correction that is common in most calendar years. Although the month of July was very close to that 10% drawdown, it has been a relatively docile year in the markets. Volatility has ticked up in the third quarter when compared to the first half of the year. As economic growth slows, uncertainty rises as markets digest a potential transition in the economy. However, most leading and coincident indicators do not point to a recession over the short to intermediate term. From a historical perspective, a slow growth but non-recessionary environment can provide the foundation for a positive market environment in large part due to expectations for increasing liquidity.
Interest Rates, Federal Reserve, & Global Liquidity
In the latter half of the quarter, most global central banks began cutting interest rates. In mid-September, the Federal Reserve decided to cut interest rates by 0.50% with the expectation of additional cuts at each of the upcoming meetings. Our expectation is that this trend continues as China eases further and the U.S. dollar weakens. While some media outlets imply rate cuts may be an indication of upcoming volatility, historical evidence is to the contrary.
As shown in Figure 1, outside of a near-term recession (Jan 2001 & Sep 2007), rate cuts have generally been bullish for equity markets. In fact, over the past 50 years, the Federal Reserve cut interest rates twenty times when the S&P 500 was within 2% of all-time highs. In all twenty instances, the stock market was higher over the following twelve months, with a median gain of approximately 10%.
Figure 1: S&P 500 Returns 12 Month After First Rate Cut Source: U.S. Global Investors
Even with these data points, the future path of returns remains uncertain. This dynamic is particularly relevant when global monetary easing from central banks is paired with accommodative fiscal conditions, as evidenced by our continued budget deficits (which we do not expect to change regardless of the election results). While this may have adverse long-term impacts on the economy, it adds a potential tailwind to markets over the coming months and quarters. Given these conditions, we do expect inflation to tick back up in 2025.
Year-End Planning
The beginning of the fourth quarter is an ideal time to review your financial situation and address year-end financial planning actions, particularly those with time-sensitive implications for tax planning. We continue to be proactive in identifying planning strategies throughout the year, and we have included a checklist of important items to consider.
These year-end financial planning activities can have a significant impact on your financial well-being and tax liability. We are here to assist you in making informed decisions and optimizing your financial plan.
We hope and expect to connect with you soon.
- Jason, Micah, Tim, Matt, & Victoria