Market Commentary September 30, 2024
Index | 3Q 2024 | 2024 YTD |
S&P 500 | 5.5% | 20.8% |
S&P 500 Equal Weight | 9.1% | 13.5% |
MSCI EAFE | 6.7% | 10.4% |
Bloomberg US Int. Term Corporate Bond | 5.2% | 4.4% |
Like the changing of the weather that ushered in summer, financial markets also experienced a change in the third quarter (Q3). The prevailing trends that have dominated the narrative of the stock market for much of the last 18 months, specifically mega-cap tech leadership, gave way to new leaders.
The S&P 500 Equal Weighted (S&P EW) made up ground that it had lost to the S&P 500 last quarter, ending the quarter up 9.1%, bringing the YTD performance up 13.5%. The S&P 500 increased 5.5% in Q3 bringing the year-to-date (YTD) total up 20.8%. International stocks also fared well as the MSCI EAFE Index increased 6.7% for the quarter, with YTD performance up 10.4%. Bonds also performed well in the quarter with the Bloomberg US Intermediate Term Corporate Bond Index up 5.2% for the quarter, and up 4.4% YTD.
As we’ve talked about over the last several quarters, narrow breadth in equity performance had been the story for most of 2023 and up to the start of the summer in 2024. The 50 largest stocks represented roughly 59% of the total S&P 500 market capitalization at the end of the quarter which is down slightly from 61% last quarter, indicating (along with the outperformance of the S&P EW) improving relative performance for the other 90% of stocks in the index. However, we still have a ways to go to get back to the 20-year market average of a 52% weight in the index for the 50 largest stocks.
When digging into the data for the quarter we can certainly see a shift in investor preference that took place starting in early July. As a reminder, factors analysis attempts to identify the specific characteristics or qualities a stock or bond may be exposed to that drive their returns. Growth and momentum remain the best performing factors YTD, however in looking specifically at the third quarter both underperformed the market in general. Value and small-cap factors were the best performing factors for the quarter. A potential explanation is that smaller companies and less expensive stocks may see improving market conditions for their businesses as the Federal Reserve shifts to lower short-term interest rates.
Which bring us to another topic of change for the quarter, the long-anticipated change in short-term interest rate policy from the Federal Reserve. During the Fed’s September meeting they announced a 0.50% cut to their short-term interest rate target. Heading into 2024 the market had anticipated that we could see 6 to 7 short-term interest rate cuts from the Fed starting in March. While this clearly did not happen as expected, September’s cut ends this cycle of tightening monetary policy which began in March of 2022. The eyes of the market now turn to how much will the Fed cut and how long will it take to get there.
Q3 for bond performance was largely driven by Federal Reserve expectations and the actual rate cut on September 18th. Prior to the announcement there was much speculation around whether the Fed would cut overnight lending rates by 0.25% or by 0.50%. Through the quarter, bond yields across the curve had trended downward (meaning prices were higher) – but interestingly, after the Fed cut longer term yields increased. To market participants, the phrase “buy the rumor, sell the news”, seemed to rule the day. It’s important to remember that the Federal Reserve holds very little control over longer term rates such as mortgages as they operate on different drivers entirely.
Looking towards the end of the year there are several looming issues that need to be addressed and digested by the markets. Namely, does the Fed continue to cut rates in its November and December meetings, escalating hostilities in the middle east and eastern Europe, Hurricane Helene disaster recovery, the threat of a port worker strike just after the new year, and of course a general election in November. However, its important to remember that uncertainty in the markets is the standard, and 2024 is not unlike the years that have come before in that regard.
As always, if you have questions regarding your portfolio, please consult your financial advisor. We appreciate your continued trust in SG Long Financial and look forward to working with you in the future.
Rob Richardson, CFA
Chief Investment Officer
Important Disclosures
Past performance is no guarantee of future results. Investing involves risk, including the possible loss of principal. The S&P 500 Index is a recognized benchmark used by investors and the investment industry for the equity market. Indexes are not a managed portfolio and are not subject to advisory fees or trading costs. Investors cannot invest directly in the S&P 500. Indexes and/or market benchmarks references used throughout this report remain the copyrighted property of their respective owners. Before investing, please carefully consider your investment objectives, risks, charges, and expenses. Views expressed do not necessarily represent the views of S.G. Long Financial Service Corp. (“SGLFS”) and are subject to change at any time based upon market or other conditions. The information provided is for general informational purposes only and should not be considered individualized or personalized investment advice.
SGLFS is the parent company of S.G. Long & Company and SGL Investment Advisors, Inc. S.G. Long & Company is a broker-dealer registered with the SEC, a FINRA member firm and a state-registered investment advisor. SGL Investment Advisors, Inc is a SEC registered investment advisory. Clients and employees of SGLFS may maintain positions discussed herein.