October 31, 2024

In this month’s update, the moon descends on Halloween and our investment team is outside with flashlights to shine some brightness into the spooky corners of economic news and market trends.

U.S. Stocks Hit New Highs

U.S. stocks have continued their impressive run, with the S&P 500 reaching new record highs and up 22.08% year-to-date as of September 30th. This marks the third-best start to a presidential election year since 1928, surpassing even the strong performance we noted last month. It’s like finding the house giving out full-size candy bars on Halloween (and telling the other trick-or-treaters where to go)! The ongoing rotation into small caps has been a key driver of this rally, suggesting a broadening of market strength beyond the mega-cap tech stocks that dominated earlier in the year.

Bonds Rally as Fed Cuts Rates

The bond market has also shown strong performance, with the US Aggregate Bond Index up 4.45% year-to-date. The Federal Reserve’s 50 basis point rate cut in September, along with projections for an additional 150 bps in cuts by the end of 2025, has fueled this rally. High Yield Bonds have been particularly strong, leading fixed income returns between 7-8% YTD, according to the Markit iBoxx USD Liquid High Yield Index.

Earnings Strength Broadens

Corporate earnings strength is expected to continue broadening beyond the tech sector in the Q3 earnings season. This trend supports our preference for broad U.S. equities. Analysts project earnings for the S&P 500 (excluding the top tech companies) to grow 4% this year and 14% in 2025, after contracting last year.

International Markets Show Promise

While we maintain our positive outlook for U.S. stocks, we maintain a neutral to negative outlook on European opportunities overall due to weak growth and limited recovery prospects. However, we see bright spots in specific sectors such as financials and healthcare, where some businesses stand to benefit more from AI and other structural shifts just as it would here.  We’re also seeing select opportunities in international markets. Japanese stocks for example have shown resilience, but we remain skeptical of Chinese investments. Following signals of major quantitative easing, the country still faces long-term structural challenges throughout their economy (such as the consequences of their previously held “one-child policy”).

Looking Ahead

As we move into the final months of 2024, we’ll be closely monitoring the upcoming U.S. election, ongoing geopolitical tensions, and their potential impacts on market volatility. While historical data suggests that election year volatility tends to be subdued unless there’s a large recession, we remain vigilant and ready to adjust our strategies as needed. Your investment team has a well-planned route for trick-or-treating—we want to know where we’re going and we’re ready for any surprises along the way!

Fun Fact—Pumpkin Spice Economics Revisited

Remember last year when we mentioned the pumpkin spice market was estimated to be worth $1.1 billion? Well, in 2024, it’s projected to reach $1.3 billion, growing at that impressive 8.2% annual rate we forecasted. It’s a reminder that seasonal trends can offer unique market insights (and tasty creamer for your coffee).

*All indices are unmanaged, and investors cannot actually invest directly into an index. Unlike investments, indices do not incur management fees, charges, or expenses. Past performance does not guarantee future results.