Brian T. Jones, CFP®, Kevin E. Donovan, CFA and, Parker G. Trasborg, CFP®, discuss markets in the third quarter of 2024.
Parker Trasborg:
Hi, my name is Parker Trasborg. I’m a Senior Financial Adviser here with CJM Wealth Advisers. And today I’ve got Kevin Donovan, our Portfolio Research Director, and a special guest, our Chairman and Financial Adviser, Brian Jones. Thank you all for joining us in tuning into our quarterly market update, where we’ll be discussing here the third quarter of 2024 and what we’re thinking for the fourth quarter looking ahead here in 2024.
Kevin, markets rallied a bit through the third quarter on both the stocks and the bond side. Can you give us a little detail on what happened there?
Kevin Donovan:
Yeah. We had a nice solid quarter, and then the third quarter. Basically, we started off with pretty good-sized earnings, corporate earnings. The S&P 500 earnings were up over 10%, which is very good, compared to the prior year. A little bit higher than expectations. So that kind of supports stock prices in the beginning of the quarter. And then towards the end, the Fed interest rates for the first time in quite a while. So that added a little bit of support for the bond prices as well.
So, why don’t we look at the chart here and we’ll show what the major indexes did for the third quarter? So you can see in what does it change from previous quarters, the S&P 500 was not the top performing index in the third quarter. The Dow Jones’s industrial average actually did the best of about 8%. And then international stocks were up about 6.7. And then came the S&P at 5.5, and bonds were up about 5.2%.
So a really solid quarter, especially for bonds, it’s a good quarter return for bonds. The interesting thing is, if you look into the numbers, is that obviously with the S&P not leading the way, this quarter wasn’t really driven by those magnificent seven leading tech stocks like Nvidia, Meta, Amazon, and Apple. But the top performing sectors were actually utilities and real estate. So real estate investment trusts had a really good point. And those are very interest rate sensitive sectors.
So when the Fed lowered interest rates and the 10-year bond declined, these stocks were really up and flowing. So they performed kind of like bonds in that way at times, and this was a really good quarter for them.
Now, if you look at value versus growth, value did outperform growth mainly in those interest rate sensitive sectors. And you look at something like energy, which is a typical value sector, that was actually negative in quarter. So we didn’t see a full rotation into the value stocks growth, but you’re seeing a little bit more broadening out, excuse me, the S&P 500 performance.
For the year result, we look at the next chart, you can see while the S&P 500 was a little bit lagging the Dow in the third quarter, it’s really outperforming on a year to date basis, driven been mostly by a very strong first and second quarter compared to the other indexes. So, the S&P is up over 20% year to date, it’s on top of about 20% last year. So a couple of really good years so far, last two years.
The Dow is up about 12.5%, and international stock of about 10. While the bond returns, you can see up 4.5%. So with all the gains we’ve seen in bonds this year, happened just in this past third quarter. So third quarter was great, and it’s looking pretty good for the year so far as well.
Parker Trasborg:
Thanks, Kevin. Brian, is there anything that surprised you here throughout the first three quarters of the year or specifically in the third quarter so far?
Brian Jones:
I’ll just say that with regards to the third quarter, I think the thing that surprised me was probably the Fed action to reduce the rates as much as they did. There was a great quote last week, Michael Hartnett, is a Bank of America analyst, and he had a great quote when he said that, “Stock markets stop panicking when central banks start panicking.” And I think when we look at, you had the ECB lowering rates, you got I think Bank of Japan as well, I guess the Fed action here not too long ago, with a 50 basis point move right out of the gate, the short-term interest rates dropped a little bit, but then towards the end of the quarter you had the long-term interest rates actually creeping back up. And I guess my question to Kevin is, what do we expect going forward for the balance of the year with regards to fed actions and continuing to lower the interest rates?
Kevin Donovan:
Well, the thought is around November, they meet the day after the election. So from what I’m meeting that thought is that they going to not really do anything then, but probably in December give another rate cut, and then continuous rate cuts next year. So, looking ahead in the equity market, October, just before a presidential election is usually pretty volatile. So we may see some big moves in the market leading up to the election. Once the election is over, things usually calm down a little. But real uncertainty things being moved, hopefully, we’ll see. And then the markets will calm down after that. So, that’s the way things usually play out in these elections.
Parker Trasborg:
Thanks, Kevin. Brian, what are you thinking for the fourth quarter?
Brian Jones:
This is probably where there might be some disagreement here at the table. I don’t know, who knows? But I’m with Kevin. I think October, especially leading up to a major election like this tends to be volatile. We have to get through that. I think it’s probably middle of November before maybe you start to see maybe markets settle down again. Again, it’ll be into the end of the year, maybe with a year-end rally, so to speak. But I think the corporate earnings that we’re going to see here starting here end of next week, should be fairly decent. I actually think might be very good depending upon the company that you’re looking at. But as with all things when it comes to earnings, you’re going to have some high profile misses. I don’t think that’s usually indicative of a wider trend. It’s probably just more headline risk, company specific, and we just kind of move on and go from there. So, my forecast is I am kind of hoping for markets to continue to improve in the fourth quarter, and definitely into 2025, for sure.
Parker Trasborg:
Yeah, I think we’re all a bit surprised at how well the market has done this year, but of course, earnings have actually kept up to support the valuations at this point.
Well, Kevin, Brian, thank you so much. That’s all the time we have for today. As we mentioned before, it was a good third quarter for both stocks and bonds, which we’re happy to see the bonds start to perform pretty well with the interest rate cut from the Fed. And we’re thinking we’ll see some elevated volatility heading here into the fourth quarter with the upcoming election and the additional Fed activity that we’re expecting.
As always, we’ll keep a close eye on markets, and what Jerome Powell and the Federal Reserve are doing. And thank you all so much for your continued trust, and we wish you the best as we head into the holiday season. Thank you. Bye-bye.
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