The third quarter of 2024 has brought significant changes to the economic and market environment, particularly with the US Federal Reserve finally making its move. For much of the past two years, investors and analysts have been closely watching the Fed’s monetary policy, wondering whether the central bank would pivot from its aggressive rate hikes aimed at curbing inflation. The big question—“Will they or won’t they?”—was finally answered on September 18, when the Fed cut interest rates by half a percentage point, reducing the range from 5.25–5.5% to 4.75–5%.
This was the first rate cut since the Fed began raising rates in March 2022, a period that saw inflation surge to its highest levels in decades. Controlling inflation has been the dominant theme in the markets. Now, with inflation metrics like the Consumer Price Index (CPI) and Producer Price Index (PPI) showing signs of slowing, attention shifted to how the Fed would respond. For much of this year, investors have been trying to guess whether the Fed could engineer a “soft landing”—lower inflation without tipping the economy into recession.
Early in the third quarter, negative employment news reignited fears that the Fed might have delayed rate cuts for too long, sparking a temporary dip in equity markets. However, optimism returned as the quarter progressed, and the feared recession did not materialize. The Fed’s larger-than-expected half-point rate cut further boosted market sentiment, with stocks responding positively.
A Look at Market Performance
From July 1 to September 30, the S&P 500 gained 3.6%, rising from 5,509.01 to 5,708.75. On the bond side, the 10-year US Treasury note yield decreased from 4.48% to 3.81%, signaling a rise in bond prices as yields fell. Year to date through the end of Q3, the S&P 500 has posted a remarkable 20.3% gain, and the yield on the 10-year Treasury has fallen by 14 basis points, moving from 3.95% at the start of the year to its current level of 3.81%.
This favorable market performance has been underpinned by the gradual cooling of inflation and the Fed’s subsequent policy shift. However, market volatility remains a concern as investors weigh the potential impact of future Fed decisions. If economic data signals a slowdown, markets could face downward pressure. On the other hand, if the economy appears too strong, some market participants may fear that the Fed could delay further rate cuts, temporarily dampening market optimism.
Geopolitical and Global Risks
Economic fundamentals aside, we cannot ignore the broader global uncertainties that continue to influence the markets. Key concerns include the highly competitive US presidential election, ongoing violence in the Middle East and Ukraine, and the fallout from natural disasters such as Hurricane Helene and Hurricane Milton. These factors add layers of unpredictability to the already complex global economic environment and have the potential to disrupt markets in the near future.
Staying Focused Amid Market Noise
Despite a favorable market landscape in the third quarter, it’s important to remember that short-term market movements are notoriously difficult to predict accurately. Given the mix of geopolitical, economic, and environmental risks, investors are best served by adhering to long-established investment principles.
This means focusing on the fundamentals:
- Maintain a well-diversified portfolio that spans various asset classes to help mitigate risk.
- Establish an asset allocation strategy that aligns with your investment goals, stage of life, and risk tolerance.
- Rebalance your portfolio periodically to ensure your holdings remain aligned with your long-term objectives.
- Keep your eyes on the long-term horizon and resist the temptation to react to short-term market fluctuations.
How Rothschild Wealth Can Help
At Rothschild Wealth, we understand that every client’s financial situation is unique and requires tailored solutions to meet individual needs. Our fiduciary commitment means we prioritize our client’s best interests, staying informed of the latest market and economic trends to offer personalized investment strategies.
If you’re looking for guidance on how to navigate these shifting market conditions and plan for your financial future, we’re here to help. Visit our website to learn more about how we can assist you in crafting an investment strategy that aligns with your long-term goals.
Disclosure: This information is for educational purposes only and should not be construed as financial advice. Please consult a financial professional for advice specific to your situation.
