I recently put together this quarterly market and economic commentary for my firm. We send it to our clients each quarter. I wanted to share it with you as well.
After the commentary, you’ll find some Year-End Financial Planning topics that may be of interest.
Market and Portfolio Commentary
Equities
The equity markets continued to enjoy broad-based strength through the third quarter of the year as investors have remained optimistic about the strength of the US economy, cooling inflation, and the Federal Reserve’s decision to begin lowering short-term interest rates. The beginning of interest rate cuts has historically been positive for stocks, and in combination with optimism that the US economy may avoid a recession, have propped the markets higher for the year. This showed up in the indices as the technology-heavy S&P 500 Index advanced 22.1% through the quarter-end to a nearly all-time high. The more industrial Dow Jones Industrial Average has gained 13.9%. The Real Estate sector made a nice recovery during the 3rd quarter with the DJ US Select REIT Index up 14.9% for the year. International stocks also showed positive strength in the year with the MSCI EAFE Index, which tracks a basket of developed market stocks, up by 13.4% at the quarter end. This was largely attributed to interest rate cuts by other global central banks and economic stimulus by China.
As we mentioned last quarter, the equity markets were mostly driven by mega-cap stocks to start the year. In the 3rd quarter, we witnessed significant rotation in other sectors and industries that had lagged so far year-to-date such as Financials and Utilities. This rotation was a welcome sign as it indicates the market strength was evident across almost all sectors and not just concentrated in certain sectors. It’s also a reason we maintain our “on target” weightings to equities across our investment portfolios. As we head into the final months of the year, earnings growth, inflation metrics, and general economic strength will be key metrics to watch. We remain cautious that pullbacks or corrections may occur, but this is normal in equity market investing.
Fixed Income/Interest Rates
While the equity markets have thrived, the bond market has also performed well this year. The bond market has historically performed well when interest rates trend lower. In September, the Federal Reserve’s Federal Open Market Committee (FOMC) began the process of lowering rates by cutting the benchmark rate by half a percent (0.50%) due to lower inflation and the desire to ease the monetary restrictions. In looking forward, the bond markets are expecting another 1.0 – 1.5% worth of cuts in the next year. For reference, the Bloomberg US Aggregate Bond Index is now up 4.4% for the year. That said, we continue to monitor the fixed income markets looking for opportunities to pick up or lock in additional yield (income) when the opportunity is presented. We believe our approach of sticking to short-to-intermediate term maturities and an emphasis on higher-credit-quality bonds will continue to be a prudent strategy.
Presidential Election
The 2024 Presidential election is just a week away. As a reminder the outcome of this and Congressional elections is sure to have meaningful implications on taxes (corporate and personal), trade, and immigration. At this point it is difficult to assess the market impact of any policy proposals with a high degree of confidence. It is worth noting that the winning candidate should inherit a fairly robust economy and a healthy labor market. As we said last quarter, market volatility in the short term usually passes as investor attention shifts back to core issues such as corporate earnings, interest rates, consumer spending, and employment.
Outlook
As we head into 2025, the US economy has proven to be far more resilient than anyone had expected, with an integral factor being the relatively solid labor market, consumer spending and continued decelerating inflation. It is appearing as though the U.S. economy will continue to produce modest growth and avoid an outright recession equating to what some might call a “soft landing”. It will be important to watch the economic figures in the first half of next year to see if this continued strength can continue. Outside of the political themes, geopolitical risk still remains high. The war in Ukraine still shows no signs of ending with the war evolving into a quasi-stalemate. The more recent increased hostilities between Israel and the Middle East have some speculating a regional conflict is becoming more and more likely.
As we’ve said in the past, we believe proper asset allocation and diversification in line with your risk tolerance and time horizon are important when managing portfolios. Diversification is important both across and within asset classes. Historically, fixed income, international investments, and real estate have provided diversification when compared to an all-equity portfolio. We can increase the chances of achieving our goals by focusing on time in the market rather than timing the market, investing in a tax-efficient manner, ignoring outside noise such as politics, and regularly monitoring investments and strategy. We will keep you updated on these and other future developments that could impact on your portfolio.
Financial Planning
As we head into the year’s final two months, we are shifting into our year-end financial planning with clients. A few topics that we are focusing on right now:
- Open Enrollment – We are working with clients during their employer’s open enrollment period. We are going over options, changes, and making sure they are taking advantage of the full suite of options available.
- Roth IRA Conversions – We are working with a few clients on Roth IRA Conversion strategies.
- Required Minimum Distributions – If clients are subject to RMDs, we are working with them to ensure the distributions are processed accurately and timely before the year-end deadline.
- IRA Contributions – We are working with clients to fund their IRA accounts for the year.
- Goal Projection Updates – If we haven’t run updated projections in the past year, we are making plans and gathering the information needed to run updated projections either now or in the first quarter next year.
- Capital Gain Loss Planning – In taxable accounts and outside investments, we are working with clients to strategize and plan around capital gains and/or losses.
- Charitable Gifting Strategies – The end of the year is the “giving season”, so working with clients on how to best accomplish their philanthropic goals.
- 2025 Planning—We are working on 2025 plans, strategies, and projections for next year or even beyond next year.
If you want to discuss any of the above with me in more detail, please reach out.
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Disclosure
The foregoing content reflects the opinions of Tom MacLennan of WMS Advisors and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful or that markets will act as they have in the past. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.