October 16, 2024

As in the second quarter, both domestic and international markets provided positive gains once again in the third quarter.  As we anticipated domestically, market participation broadened out during the quarter. And both domestic and international markets as represented by the S&P 500 and All Country World Index (ACWI) saw new highs during the quarter. The Fed cut rates in September, as expected, but by 50 basis points. This opens the door for central banks more broadly to cut rates as well which will be positive for these countries and their markets. Inflation has moderated globally providing flexibility for more central banks to follow the U.S. lead in cutting rates. Geopolitical tensions continue in Ukraine/Russia, between China and the U.S. and are rising in the Middle East and could result in increased market volatility.

During the quarter we increased the cyclical exposure in the portfolio by adding to the Industrial Select Sector SPDR ETF. Industrials should benefit from the lower interest rates as the Fed begins it’s new easing cycle. In addition we increased our international exposure with an addition to the Franklin FTSE Indian ETF. The Indian economy continues to be strong and India continues to benefit from the transition of outsourcing from China. We funded these additions by reducing the large cap growth exposure. This holding has benefited from the outperformance of  a concentration of large cap tech names which we feel will moderate going forward as the market broadens out, as we experienced in the third quarter.

During the quarter rates, as measured by the 10 Year Treasury, moved lower from 4.43% at  the beginning of the quarter to 3.77% at quarter end. We took this opportunity to eliminate our long bond exposure and reallocated those funds to the intermediate area of the curve. Expectations are for interest rates in the short to intermediate areas of the yield curve to move lower reflecting the Fed’s new easing cycle.

Domestically the U.S. economy continues to grow in the 3.0% range as inflation moderates and the Fed begins easing. Consumers remain strong and all of this should present a positive backdrop for domestic markets. The Fed’s recent rate cut opens the door for numerous international countries to begin cutting as well. This should benefit growth internationally and they continue to have attractive valuations in comparison to domestic markets. We believe the balance and positioning in the portfolio should position our clients well as we move into the end of this year and into 2025.