Market & Economic Commentary: Q3 2024
Quarter in Review
During the third quarter of 2024, the markets finally got a long-awaited interest rate cut by the Federal Reserve, signaling a beginning to the end of a period of elevated interest rates meant to slow price growth. Markets rallied significantly, driven by optimism for economic growth, moderating inflation data, and the initial phase of interest rate reductions. All major indices ended Q3 with gains for the quarter and year-to-date.
The enthusiasm was broad, with almost all sectors gaining value.1 Despite a pullback toward the end of the quarter, small-cap stocks had a stronger performance than their large and mid-cap counterparts, recording a 10% rise in Q3. Emerging Markets also posted robust returns, outpacing the U.S. and International Developed markets.2 Fixed-income market returns were also positive for the quarter as yields declined. Despite optimism about U.S. growth, stagnation in China put pressure on global commodities, a dynamic that led to downward pressure on U.S. inflation and further supported the lowering of interest rates.3
Inflation and Interest Rates Propelled the Third Quarter
The U.S. economy experienced steady growth, with GDP rising at a 3% annualized rate through Q2 despite predictions of a slight reduction. This growth occurred even as the Fed has kept a keen eye on potential wage inflation signs, which could influence monetary policy decisions down the line.
Federal Reserve Chair Jerome Powell recently articulated an optimistic view of a “soft landing” for the economy supported by lowered interest rates—a process that began with a half-point cut in September. Should the economy maintain its current trajectory, Powell expects two more quarter-point cuts before the year-end, although the market still anticipates more aggressive cuts.4
Inflation, measured by the September Personal Consumption Expenditures (PCE) Index, increased by 2.4% year-over-year, closely aligning with the Fed’s 2.00% target. At this level, the Fed should be able to continue lowering interest rates, the positive effect of which would be lower financing costs for both consumers and businesses with adjustable-rate debt, such as credit card balances and loans.
A further positive dynamic for growth is that employment has remained robust. Recently, months in which there have been hints of slowing in the jobs market have often been followed by resumed strength. Indeed, economists and Federal Reserve officials predict a 4.4% average unemployment rate in 2025, which is expected to decrease slightly in the subsequent year. As of August, the jobless rate was 4.2%, which is anticipated to remain consistent in September.5
Together, stabilizing prices, falling borrowing costs, and a robust labor market should provide consumers with the confidence to maintain spending levels.
Caution Amid Optimism: Look at Market Trends
Despite favorable economic conditions, investors remain cautious. The dominance of a few large-cap technology stocks focused on Artificial Intelligence (AI) poses a risk. If AI-related growth and monetization fall short of expectations, these large companies, which account for just under 32% of the S&P 500, could drag down the broader market performance. To some degree, this encouraged some shifting during the quarter into more diverse areas of the market and contributed to a multi-sector advance wherein many sectors, such as financials and industrials, outperformed the large-cap tech sector.6
The Election Could Buffet Markets
With the November elections approaching, we expect an increase in volatility given that the period around national elections is often fraught with uncertainty that prompts reactionary investment behaviors. Political shifts can potentially trigger changes in foreign policies and international relations—both of which can impact stock prices. Regardless of the often-sharp swings around election time, historical data shows that markets typically trend upward in the period after an election, regardless of political outcomes.
In this cycle, in particular, economic proposals from both parties have led some investors to fear the possibility of a post-election spending spree, growing deficits, and a return to higher interest rates. While campaign rhetoric often fails to translate into actual policy, one method currently being discussed for paying for some of the proposals would be raising corporate taxes. This strategy usually sets off alarms among investors as they fear that lower company after-tax earnings will slow growth. It is important to point out, however, that historically, increases in the corporate tax rate have not had a negative impact on market returns.
According to Fidelity, in the five instances since 1950 where the corporate tax rate was increased, the S&P 500 has gained 13% on average.7
Final Thoughts – Stay the Course
Elections naturally bring uncertainty, often leading investors to make speculative predictions. Of course, that doesn’t stop us from guessing or believing we know what will happen. But even the world’s brightest, most well-informed, connected, successful minds don’t have a fail-safe crystal ball.
What we do know, however, is the tendency of markets to reward investors over time. The chart below shows that markets can be highly volatile, and short-term results vary widely. Yet, investors willing to remain patient and stay the course over time—and through various election and economic cycles—have historically been rewarded with a more reliable range of outcomes. This chart is hypothetical in nature and is not based on actual results of any client or portfolio managed by the firm. This chart is intended to provide an illustrative pattern, for informational purposes only.
Hypothetical Illustration. Source: Bloomberg, FactSet, Federal Reserve, Robert Shiller, Standard & Poor’s, Strategas/Ibbotson, J.P. Morgan Asset Management Guide to the Markets – U.S. Data are as of September 30, 2024. Returns shown are based on calendar year returns from 1950 to 2023. Stocks represent the S&P 500 Shiller Composite for periods prior to 1936 and the S&P 500 thereafter. Bonds represent Strategas/Ibbotson for periods prior to 1976 and the Bloomberg Aggregate thereafter. Growth of $100,000 is based on annual average total returns from 1950 to 2023.
1 S&P Dow Jones Indices, Index Dashboard Data as of September 30, 2024
2 Morningstar Direct as of September 30, 2024
3 S&P Dow Jones Indices, Index Dashboard Data as of September 30, 2024
4 Omeokwe, A., “Powell Says Fed Will Lower Rates ‘Over Time,’” Bloomberg.com, September 30, 2024,
5 Golle, V., and Morgan, D., “U.S. Inflation Hits Fed’s 2% Goal Early 2025 in Economists Survey,” Bloomberg.com, September 27, 2024,
6 https://www.spglobal.com/spdji/en/documents/performance-reports/dashboard-us-sector.pdf,
7 https://www.yahoo.com/finance/news/kamala-harriss-plan-raise-corporate-084100371.html
Index Disclosure and Definitions
Investors cannot invest directly in an index. Indexes have no fees. Historical performance results for investment indexes do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment management fee, the occurrence of which would have the effect of decreasing historical performance results. Actual performance for client accounts will differ from index performance.
S&P 500 Index: Represents the 500 leading U.S. companies, approximately 80% of the total U.S. market capitalization.
Dow Jones Industrial Average (DJIA): A price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ.
Nasdaq Composite Index (NASDAQ): Measures all Nasdaq domestic and international based common type stocks listed on The Nasdaq Stock Market and includes over 2,500 companies.
MSCI World Ex USA GR USD Index: Captures large and mid-cap representation across 22 of 23 developed markets countries, excluding the U.S. The index covers approximately 85% of the free float-adjusted market capitalization in each country.
MSCI Emerging Markets Index: A free float-adjusted market capitalization index designed to measure equity market performance in the global emerging markets (as defined by MSCI). The index consists of the 25 emerging market country indexes.
Bloomberg Barclays US Aggregate Bond Index: Measures the performance of the U.S. investment-grade bond market. The index invests in a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States—including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than 1 year.
Bloomberg Barclays Global Aggregate (USD Hedged) Index: A flagship measure of global investment grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate, and securitized fixed-rate bonds from both developed and emerging market issuers. Index is USD hedged.
© Morningstar 2021. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied, adapted, or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information, except where such damages or losses cannot be limited or excluded by law in your jurisdiction. Past financial performance is no guarantee of future results.
The Kaminsky-Silverman Group utilizes Symmetry Partners, LLC (SP), a third-party service provider that supplies market data and assists in the creation and monitoring of factor-based investment models. SP is also an investment advisory firm registered with the Securities and Exchange Commission. All data is from sources believed to be reliable but cannot be guaranteed or warranted. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, product, or any non-investment-related content referenced directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance levels, be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may not reflect current opinions or positions. Please note that the material is provided for educational and background use only. Moreover, you should not assume that any discussion or information contained in this material serves as the receipt of, or as a substitute for, personalized investment advice.
Diversification seeks to improve performance by spreading your investment dollars into various asset classes to add balance to your portfolio. Using this methodology, however, does not guarantee a profit or protection from loss in a declining market. Past performance does not guarantee future results.
This material is confidential and is provided for informational purposes only and is not intended to be relied upon as a forecast, research, or investment advice, and is not a recommendation, offer, or solicitation to buy or sell any securities or to adopt any investment strategy. Investment return and principal value of an investment will fluctuate; therefore, you may have a gain or loss when you sell your investment. Any opinions, expectations, and projections within this document are solely those of the Portfolio Manager(s) and/or Financial Advisor(s) identified and do not necessarily represent the viewpoint of Shufro, Rose & Co., LLC or other Portfolio Managers at the firm. This report was prepared by Shufro, Rose & Co., LLC and is presumed to be correct. Shufro, Rose & Co., LLC is an investment adviser registered with the Securities and Exchange Commission. ADV Part 2A is available upon request or at https://adviserinfo.sec.gov/. Please contact Shufro, Rose & Co., LLC at (212) 754-5100 with any questions.
