Market Update
Fourth Quarter 2024
The Federal Reserve's decision to cut rates by another 50 basis points (or 0.50%) was a key event in the quarter, leading to a mixed reaction across investment markets. The 10-year U.S. Treasury yield soared by over 75 basis points, indicating resistance from the bond market due to concerns of more persistent inflation and uncertainty around the impact of potential policy changes. After another positive quarter for U.S. equity markets and a strong 2024, market concentration has continued to grow and so have the risks associated with it.
Third Quarter 2024
The third quarter was strong for seemingly all investment assets. That said, the current market rally was thrown off course in early August as investors reacted to a weaker-than-expected jobs report, fueling concerns that a stumbling labor market implied a recession may be looming. After retracing 8.5% by mid-August, the S&P 500 had just about fully recovered by the end of the month, and subsequently powered to new highs after the Federal Reserve delivered a 50 basis point rate cut (or 0.50%).
Second Quarter 2024
Growth remains positive and core inflation moderated from 3.8% to 3.3% during the quarter. The current market environment has provided room for the Federal Reserve to reduce the Fed Funds rate. This sentiment fueled the equity market and “riskier” segments of fixed income, such as high yield. Valuations have moved higher on the back of strong price movement, however this shift was mostly attributed to the concentrated top constituents.
First Quarter 2024
Defying investor expectations, the U.S. economy continues to be defined by one word: resilient. U.S. GDP has grown above 2% in each of the last six quarters and the labor market remains strong. Against this healthy economic backdrop, the equity market and “riskier” segments of fixed income pushed higher during the first quarter. Valuations have moved higher on the back of strong price movement while earnings growth has been muted. Expectations are for positive earnings growth in Q1 (3.6%) and for calendar year 2024 (11.0%) but margin pressures may be a headwind.
Fourth Quarter 2023
The “Recession of 2023” that was widely forecasted failed to materialize this year. While economic data has remained favorable, there are signals that we are not out of the woods on recession. To name a few, leading indicators remain negative on a year-over-year basis; the unemployment rate, while still low, has moved above the 12-month moving average; and monetary policy remains in restrictive territory. However, rather than trying to time a recession, we advocate for constructing resilient portfolios as market volatility and recessions are a normal part of investing.