Q3 2024: A Tale of Two Markets

As we wrap up the third quarter of 2024, it's clear that the investment landscape has been anything but dull. The quarter was marked by a tale of two markets: one filled with volatility and uncertainty, and the other characterized by resilience and growth. Let's dive into the key drivers that shaped this quarter's performance and explore what lies ahead.

The quarter began with a bang, as investors grappled with a weaker-than-expected jobs report and concerns about an impending recession. The S&P 500 took a nosedive, retracing 8.5% by early August. However, the market proved resilient, with the index rebounding and ultimately powering to new highs by the end of the quarter. This rollercoaster ride was fueled by a series of rate cuts from the Federal Reserve and a sizeable stimulus package from China.



One of the most notable trends in Q3 2024 was the rotation out of tech stocks and into value and small-cap stocks. Investors, weary of stretched tech valuations, sought refuge in undervalued sectors. This shift led to a significant boost in value and small-cap stocks, with the Morningstar US Value Index returning 8.95% and the small-cap Russell 2000 Index gaining 10.1%.

As tech stocks took a backseat, investors turned their attention to other sectors. Mid-cap blend stocks led the way, with gains of 10.8%. Utilities and real estate stocks, sensitive to interest rate changes, also performed well, gaining 19.81% and 16.92% respectively. Energy stocks, often under-owned, saw increased interest.



Bond markets, too, had a strong quarter. The Morningstar US Core Bond Index rose 5.15% as inflationary pressures eased and the Federal Reserve delivered its first interest rate cut since 2020. The yield curve un-inverted as bond yields fell, boosting bond market performance.

Geopolitical risks and election uncertainty contributed to market volatility in Q4 2024, but overall performance remained robust. The US election in November 2024, a close race between Donald Trump and Kamala Harris, caused market jitters. However, the Fed's rate cuts and China's stimulus package offset these concerns, leading to strong global equity returns.

As we look ahead to the fourth quarter, investors should remain vigilant to geopolitical risks and labor market dynamics. However, with a balanced portfolio combining growth and value stocks, and a focus on risk management, investors can navigate the uncertainties that lie ahead.

In conclusion, Q3 2024 was a quarter of contrasts, with volatility and growth coexisting in the investment landscape. As we move into the final quarter of 2024, investors should remain agile and adaptable, ready to capitalize on opportunities as they arise.