Wealth Management Insights for Q3 2024

Third Quarter 2024

The S&P 500 gained 5.9% in the third quarter, bringing year-to-date gains to 22.1%, the best first three quarters since 1997. Inflation continued to move toward the Fed’s 2% target, while economic and earnings growth were broadly in line with market expectations. Investor sentiment rose in September with the Fed’s pivot from rate hikes to rate cuts. Market strength extended beyond the Magnificent Seven, with small-company and emerging-markets stocks rallying as the quarter ended. Bonds also provided excellent returns, with 10-year Treasury yields failing by more than half a percent.

At Nixon Peabody Trust Company, we continuously evaluate real-time economic data and short- and long-term forecasts to build customized strategies that grow your assets. If the flood of financial headlines leaves you a bit confused, you can be confident that we’ve designed a portfolio-positioning strategy to maximize your success.

Market review

Several market segments left behind earlier this year got their moment in the spotlight in the third quarter. Fed easing helped the interest-rate sensitive segments of the market, including banks and homebuilders, while utilities stocks benefited from lower rates as well as massive AI-related power demands. The Russell 2000 Index gained 9%, the best quarter since 2021. Emerging-markets stocks did nearly as well, gaining 8.7%.

Bond prices rose during the quarter, with the Bloomberg Aggregate Index gaining 5.2%. Ten-year Treasury yields fell to 3.8%.

	Q3	YTD
Equity
MSCI All Country World Index	6.6%	18.7%
S&P 500 Index	5.9%	22.1%
NASDAQ Composite Index	2.8%	21.8%
Russell 2000 Index	9.3%	11.2%
MSCI World ex-US Index	7.9%	13.7%
MSCI Emerging Markets Index	8.7%	16.9%
Fixed Income
Bloomberg Aggregate Index	5.2%	4.5%
Bloomberg 1–5 Year Gov/Credit	3.5%	4.5%
Bloomberg Municipals	2.7%	2.3%
Bloomberg 1–3-Month T-Bill	1.4%	4.1%

Utilities and real estate were the best-performing sectors in the quarter, with financials also performing well. Energy, technology, and communications lagged. Utilities edged out technology and communications as the top-performing S&P 500 sector year-to-date; energy and healthcare were the worst-performing sectors.

Corporate earnings

Corporate earnings were generally positive, with double-digit year-over-year earnings growth and mid-single-digit revenue growth. Overall earnings growth was in line with expectations, though several companies that fell short of expectations were punished severely by the market. Earnings estimates for 2024 rely heavily on strong results for the latter part of the year, a factor we will be watching carefully given indications of more cautious household and business spending behavior.

Inflation

Inflation measures continue to be slightly higher than expected, but considerably below the peaks reached during 2022. Most observers expect inflation to remain above target until late 2025 or 2026. Higher interest rates and inflation have had a disproportionate impact on low- and middle-income consumers, contributing to some slowing of consumer spending and a pickup in credit delinquencies.

Fed policy

The Fed cut interest rates by 50 basis points in September, while signaling that more easing is on the horizon. In its statement following the rate cut, the Fed cited progress in bringing inflation toward target levels and slowing the labor market. A strong September jobs report, which hit after the Fed’s initial cut, makes a 25 basis-point cut in November more likely than a second 50 basis-point cut. The good news is that we have more evidence that the labor market is normalizing rather than becoming distressed, which supports the consensus view that the US is likely to avoid entering a recession.

China

China announced a long-awaited stimulus package in late September. The multifaceted approach combines monetary, fiscal, equity market, and housing support. The positive market reaction after the announcement was more a function of the perceived commitment to stimulating growth than to the actual composition of the package. The policy pivot tackles long-standing concerns, creating hopes that China will adopt a more balanced and sustainable growth model.

Portfolio positioning

With less than three weeks to go until the election, the race for the presidency and control of Congress remains too close to call. We continue to assess the potential winners and losers from different election outcomes in the context of our long-term investment strategy. Although elections are important, corporate earnings, cash flows, and interest rates tend to drive markets.

The escalating conflicts in the Middle East may be the biggest unknown for investors, but it is hard to assess the impact on financial markets. The length and magnitude of the conflicts will likely influence the direction of oil prices. If the conflicts widen, bonds and stocks could be vulnerable to a greater surge in oil prices.

We have positioned portfolios to benefit from a continuation and broadening of the stock market rally, while including conservative bond holdings to diversify portfolios in the event of a weakening of the investment environment. We will be watching earnings announcements in October and November, as well as economic and Fed policy developments, to determine any further positioning changes as we approach year end.

If you have questions or comments about your personal portfolio or any of the trends and strategies we’ve outlined here, please reach out to us or any member of your Nixon Peabody Trust Company team. We’re always happy to hear from you.

Daniel Kern
Chief Investment Officer
+1 617.345.1044
dkern@nixonpeabody.com

Matthew Martino, CFA
Senior Director of Portfolio Strategy
+1 617.345.1122
mmartino@nixonpeabody.com