Global Market Commentary: Third Quarter 2024
Markets Have Strong 3rd Quarter
Global equity markets had a strong third quarter, with the Federal Reserve’s decision to cut interest rates providing a significant tailwind for stocks. Mega-caps and smaller-caps reversed their underperformance from the second quarter, while tech names and growth stocks still performed decently. The DJIA hit 12 record highs in the third quarter, while the S&P 500 reached 11 new peaks, driven by a robust September rally that marked its best September since 2013 and extended its streak to five consecutive months of gains.
NASDAQ and the Russell 2000 are also closing in on their record levels.
The overall sector performance in the third quarter was very strong:
Reviewing the sector returns for just the 3rd quarter of 2024, we saw that:
- 10 of the 11 sectors were painted green, as 8 saw relative performance improvement from the 2nd quarter;
- The tech-laden sectors – think Information Technology and Communication Services – underperformed relative to previous quarters.
- The interest-rate and more defensive names (think Financials, Utilities and Materials) all performed very well, spurred by the Fed’s rate cut;
- The Energy sector continued to struggle, as WTC Crude trended downward all quarter; and
Investors saw strong quarterly performance around the world too, as 35 of the 36 developed markets tracked by MSCI were positive for the third quarter of 2024. And for the 40 developing markets tracked by MSCI, 33 were positive.
Fed Makes Big Rate Cut of 50 bps
A major headline this quarter was the Federal Reserve's unexpected move to cut interest rates by 50 basis points, lowering the federal funds rate to a range of 4.75%–5.00%. This is the Fed’s first rate cut in over four years, signaling a strategic pivot to support a slowing job market and stimulate economic growth as inflation shows signs of moderation.
The larger-than-usual cut, twice the size of a typical adjustment, heightened concerns that the Fed is more worried about the labor market's weakness than previously thought, even as inflation appears to be stabilizing.
Fed Chair Jerome Powell stated that "the time has come" for the central bank to act, indicating increased confidence that inflation is on track to reach its 2% target.
The decision follows a 14-month period of elevated rates that peaked at 5.25%, marking a significant shift in policy direction. Powell highlighted that the cut is aimed not only at managing inflation but also at reinforcing the job market's resilience.
Markets are anticipating additional rate cuts in November and December, which could lead to more aggressive easing if the economic outlook remains uncertain. As Powell noted, "We have gained greater confidence that inflation is moving toward 2%," but risks to the broader economy remain.
Labor Market Showing Mixed Signals
As the Fed aims to engineer a soft landing for the economy, the U.S. labor market in the third quarter of 2024 showed mixed signals. The unemployment rate remained relatively stable, hovering around 3.8% in September. However, jobless claims experienced fluctuations, indicating some ongoing uncertainties in labor demand.
Jobless Claims Trends:
Initial jobless claims showed a moderate increase throughout the quarter, rising from approximately 210,000 per week at the beginning of the quarter to around 225,000 by the end of September. This slight uptick suggests a cooling in hiring, potentially linked to concerns over economic growth.
Unemployment Rate:
The unemployment rate held steady at around 3.8%, reflecting a strong labor market with solid job gains in sectors such as healthcare and professional services. However, some softness appeared in industries sensitive to interest rates, like construction and manufacturing, which have seen a slight increase in layoffs.
The following chart illustrates the trend in jobless claims over the third quarter of 2024.
Consumer Sentiment Rises
According to the University of Michigan: “Consumer sentiment extended its early-month climb, ultimately rising more than 3% above August. This increase was seen across all education groups and political affiliations. Furthermore, all five index components gained, led by a 6% surge in one-year business expectations.
The expectations index is now 13% above a year ago and reflects greater optimism across a broad swath of the population. While sentiment remains below its historical average in part due to frustration over high prices, consumers are fully aware that inflation has continued to slow.
Sentiment appears to be building some momentum as consumers’ expectations for the economy brighten. At the same time, many consumers continue to report that their expectations hinge on the results of the upcoming election.
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