Equity markets reached new highs in the third quarter overcoming oscillating economic data and uncertainty over the timing of Federal Reserve rate cuts. The biggest headline of the quarter, and the driver of much of the market’s movement, was the Fed’s announcement in September that it was (finally) lowering rates.
With inflation now approaching the Fed’s 2% target, and further rate cuts likely, investor attention is on the softening labor market and if the Fed can keep a recession at bay. We expect the hyperattention on Fed commentary to keep market volatility elevated near-term, as optimism and pessimism shift with each economic release.
The S&P 500’s performance historically varies significantly based on whether a recession follows closely behind the first rate cut. When cuts stimulate growth and there isn’t a recession, the S&P 500 has averaged a 23% gain over the next 12 months, while a resulting recession leads to a 4% loss over the same timeframe. As it stands today, we think markets are pricing in more policy easing than will occur, potentially causing further volatility through year-end.
Further adding to the “bumpiness” is the lead-up to the 2024 US Presidential Election. As we noted in our recent election piece, Maintain Your Investment Strategy During Election Years, political views can stir strong emotions, but making investment choices based on the day-to-day market noise is usually a bad idea. Political emotions always run high, but history suggests that consistent investing (i.e. not market timing), corporate earnings, and valuations drive stock market performance far more than election outcomes; The U.S. economy’s growth and resiliency will persist regardless of election results.
For investors looking to avoid the volatility there are opportunities in shorter duration fixed to earn attractive yield above money market funds. However, our advice to most investors is to remain invested throughout this period and waiting until early-2025 to make any significant changes.
ENDNOTES
Disclosures
This commentary reflects the personal opinions, viewpoints and analyses of the author providing such comments, and should not be regarded as a description of advisory services provided by Defiant Capital Group or performance returns of any Defiant Capital Group client. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Defiant Capital Group manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary.
This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her advisors.
The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass. This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions that may have been made in preparing this material could have a material impact on the information presented herein by way of example. Past performance is no guarantee of future results. Investing involves risk; principal loss is possible.
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A word on risk
All investments carry a certain degree of risk, including possible loss of principal, and there is no assurance that an investment will provide positive performance over any period of time. Equity investments are subject to market risk or the risk that stocks will decline in response to such factors as adverse company news or industry developments or a general economic decline. Debt or fixed income securities are subject to market risk, credit risk, interest rate risk, call risk, tax risk, political and economic risk, and income risk. As interest rates rise, bond prices fall. Non-U.S. investments involve risks such as currency fluctuation, political and economic instability, lack of liquidity and differing legal and accounting standards. These risks are magnified in emerging markets. This report should not be regarded by the recipients as a substitute for the exercise of their own judgment. It is important to review your investment objectives, risk tolerance and liquidity needs before choosing an investment style or manager.
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