Newsletter - 3rd Quarter 2024

SUMMARY

he Federal Reserve made a significant move last month by cutting the fed funds target range by 50 basis points to 4.75%-5.00%, marking the first reduction since the 2020 pandemic. This is only the second non-recessionary easing cycle to begin with such a cut since 1970, with the other being in 1984. The 50-basis point cut brought the real fed funds rate back to 2.5%, slightly above its last hike.

Real GDP grew at a 3.0% annualized rate in Q2, matching estimates, with upward revisions to inventories and government spending offset by declines in capex and net exports. The September employment report was unexpectedly strong. Nonfarm payrolls grew by 254,000, well above the 150,000 consensus and even higher than the top Bloomberg estimate of 220,000. Even adjusting for potential payroll overstatement, this far exceeds the level needed to absorb labor force growth.

A larger-than-expected Fed interest rate cut and new stimulus from China pushed the S&P 500 to record highs in September. This boost in monetary and fiscal policy favored cyclical sectors like Consumer Discretionary, Communication Services, and Industrials, which all gained for the quarter. Defensive sectors, including Consumer Staples and Health Care, underperformed, while Utilities ranked as the second- best performer. Energy fell nearly 3% and remains the worst performer for Q3 and year-to-date, but higher oil prices could prompt a rebound. 

Value outpaced Growth at all Russell 3000 market cap tiers in Q3. The biggest spread came from large caps. The Top 200 Value companies beat the Top 200 Growth companies by a 6% margin, as mega-cap Growth stocks gave back some of their relative gains from the first half. Small-caps and mid-caps outperformed, with the Russell 2000 and Russell Mid-Cap outpacing the Top 200 companies by nearly 4%.

As we approach the November election, investor anxiety may begin to increase based on the uncertainty surrounding the outcome. Although market volatility has typically increased leading up to Election Day, it tends to subside in the two-month period leading up to Inauguration Day. More importantly, investors should know that election years have generally been good for the U.S. stock market with the S&P 500 rising in almost every year since 1960. That being said, we strongly advise that you do not make long-term strategic investment decisions based solely on their political disposition.  Schedule a free consultation with us to discuss your financial situation.

US ECONOMY 

Real GDP grew at a 3.0% annualized rate in Q2, matching estimates, with upward revisions to inventories and government spending offset by declines in capex and net exports. This followed an upwardly revised 1.6% growth in Q1, providing stronger-than-expected  momentum for the economy. Real gross domestic income (GDI) saw a significant upward revision to 3.4%, along with higher estimates for disposable income and corporate profits.

he September employment report was unexpectedly strong. Nonfarm payrolls grew by 254,000, well above the 150,000 consensus  and even higher than the top Bloomberg estimate of 220,000. Even adjusting for potential payroll overstatement, this far exceeds the level needed to absorb labor force growth.  Revisions to the prior two months added another 72,000 jobs. Average hourly earnings rose 0.4% (vs. 0.3% expected), with a year-over-year increase of 4.0% (above the 3.8% forecast). The unemployment rate dropped to 4.1%, surprising economists who expected it to hold at 4.2%. Private payrolls jumped 223,000, the most in six months, and more than double the three-month average through August. The acceleration suggests that strong business activity has driven up labor demand.

The housing market is improving after being stalled by high mortgage rates, with inventory rising and home price growth stabilizing. Supply of single-family homes grew to 4.7 months in August, up from around 2.0 months in late 2021 and in early 2022. Mortgage rates dropped over 100 basis points this year to about 6% in September, the lowest since early 2023.

US EQUITIES 

he S&P 500 outperformed the Dow Jones Industrial Average (DJIA) by nearly 9%. The strength was largely driven by non-DJIA stocks like Nvidia. Utilities also soared by double digits, outperforming the S&P 500. This marks only the third time since 1972 that Utilities beat the S&P 500 by over 10% while the broader market was still up, benefiting from falling interest rates and A.I. infrastructure investment. Stocks and bonds also saw gains, with the S&P 500 up 5.9% in Q3. Emerging markets led globally, with the MSCI Emerging Markets Index up 6.6%, while developed markets saw a modest 0.8% gain. It’s important to note that historically, easing cycles into soft landings have been bullish for stocks, so all eyes are on the Fed to control monetary policy. 

A larger-than-expected 0.5% Fed rate cut and new stimulus from China pushed the S&P 500 to record highs in September. This boost in monetary and fiscal policy favored cyclical sectors like Consumer Discretionary, Communication Services, and Industrials, which all gained for the quarter. Defensive sectors, including  Consumer  Staples and Health Care, underperformed, while Utilities ranked as the second-best performer. Energy fell nearly 3% and remains the worst performer for Q3 and year-to-date, but higher oil prices could prompt a rebound.

Value outpaced growth at all Russell 3000 market cap tiers in Q3. The biggest spread came from large caps. The Top 200 Value companies beat the Top 200 Growth companies by a 6% margin, as mega-cap Growth stocks gave back some of their relative gains from the first half. Small-caps and mid-caps outperformed, with the Russell 2000 and Russell Mid-Cap outgaining the Top 200 companies by nearly 4%.

US FIXED INCOME

The FOMC made a significant move by cutting the fed funds target range by 50 basis points to 4.75% - 5.00%, marking the first reduction since the pandemic. This is only the second non-recessionary easing cycle to begin with such a cut since 1970, with the other being in 1984. The 50-basis point cut brought the real fed funds rate back to 2.5%, slightly above its last hike. The Fed projected 100 basis points of cuts this year and next, with a neutral rate revised upward for 2026. Contrary to some views, falling Treasury yields do not indicate a negative outlook but rather reflect progress on inflation and a move toward neutral policy. The Fed’s GDP growth estimate for this year was lowered to 2.0%, with unemployment expected to rise to 4.4%.

Fixed income was positively correlated with stocks last quarter, with the Float Adjusted U.S. Aggregate gaining 5.2%. Bonds rallied as confidence grew that the Federal Reserve would achieve its 2% inflation target, leading to the start of a Fed easing cycle by the end of the quarter. Long-duration assets outperformed, with long-term Treasurys and investment-grade corporates rising, outperforming the broad bond market. Additionally, front-end yields have historically fallen in 10 of the past 12 rate cut cycles since 1970, with only 1980 and 1998 showing short-term yield increases, while the market has already repriced 2-year Treasury notes following the Fed’s recent meeting. Despite a strong jobs report, softer data from JOLTS (Job Openings and Labor Turnover Survey) along with geopolitical uncertainty, could drive yields lower in the coming months.

ELECTION YEARS

lection years have generally been good for the US stock market. The S&P 500 Index has risen in almost every election year since 1960. The exceptions were 2000 and 2008, which were marred by the dotcom bust and the financial crisis, respectively. The record looks even better for recent election cycles. In the three election years since 2008 —2012, 2016, 2020 — the benchmark index rose at least 10%.

Taking a narrower view and focusing on just the last seven months of an election year gives a similar picture. Since 1950, the S&P 500 has risen in that time frame for 16 out of the 18 presidential elections, according to data and analysis from the Stock Trader’s Almanac. One down year was 2000, when the outcome was delayed for 36 days; the other was 2008.

When looking at market volatility in an election year, investor anxiety has generally risen leading up to Election Day in the last eight cycles. However, market volatility often cools down once the election is over and in the roughly two-month period leading up to Inauguration Day. That being said, we strongly advise that clients not make long-term strategic investment decisions based solely on their political disposition.

Happy Fourth Quarter from the Planning Department!

At Prestige Wealth Management, we guide our clients to take a year-round approach to their tax and financial planning. The following opportunities may be available to benefit your situation. Please contact us to learn more:

Annual to-dos including: 

• Funding your retirement plans (if you are a new business owner, you may need to establish a plan by year’s end, even if you don’t fund it until later).
• Take required minimum distributions if over 73 years of age or if you have an inherited IRA with mandatory withdrawals.
• Make annual exclusion gifts (up to $18,000) to families, charities and others. 
• Look closely at your estate plans to see if you should make changes given the upcoming 2026 expiration of provisions of the Tax Cut and Jobs Act of 2017. This may impact gifting and estate plans in particular.

Look at your investment planning opportunities, including: 

• If you are holding cash, make sure you are holding the ‘right amount’ of liquid assets, in case of interest rate adjustments in coming days.
• Tax-loss harvesting opportunities. 
• Year-end adjustment to your strategic asset allocations and asset locations (tax-efficiency adjustments), and 2025 withdrawals to minimize tax impacts. 
• Consider whether 2024 is the right year to convert retirement plans to Roth Accounts.

 Consider your gifts and donations:

• Consider that in 2026, the current $13.61MM in free gifting (free of gift/estate tax) is scheduled to be cut in half, which may expose your current strategies to unexpected tax and costs. 
• Consider whether your gifts are planned to move forward your philanthropic goals or if your gifts are given reflexively and sporadically. Could your goals be better achieved and, potentially at a lower overall cost in other ways, such as through Donor Advised Funds, trusts?

Review your will and other estate documents, obtaining guidance prior to meeting with your estate planning attorney:

• At Prestige, we can review your estate and gift plans to help to prepare you for your next steps.
• Confirm that your estate plans are up to date, in compliance with current tax law and that your key persons (executor, trustees, custodians, beneficiaries) are correctly assigned and in a position to execute their respective responsibilities. 
• Conduct a beneficiary audit of your assets and account, review your asset ownership designations and decide whether changes are necessary.
• Be certain that your accounts and financial communications are safe from cyber criminals and that you have planned for your digital estate.

As financial professionals, we are dedicated to keeping you informed about changes that might impact your unique circumstances. Our commitment is to offer you quality service and ensure your investments align with your goals, time horizon, and risk tolerance.  Please contact us for a free consultation.

Discuss Your Concerns With Us!

Whether you are seeking investment advice, tax strategies, estate planning, or a financial plan, our advice is not one-size fits all. We are ready to provide you with financial solutions to achieve a better retirement. We will always consider your feelings about risk and the markets and review your unique financial situation when making any recommendation.