3Q24 Quarterly Recap
Market Indices
At-A-Glance
- The S&P 500 closed out September at 5,762 to clinch its 43rd all-time high this year. The S&P 500 is up 41.89% from its October 2023 low and capped its fourth straight quarterly gain (its longest winning streak since 2021).
- The Dow Industrials rose 1.96% last month, capping the quarter with an 8.72% gain. The Dow-30 Index is up 13.93% YTD and joined the S&P 500 in securing their fifth straight monthly gain.
- The Nasdaq Composite gained 2.76% in September and 2.76% in the third quarter. The broad Nasdaq index slightly trailed the S&P 500 on a YTD basis, +21.84% versus +22.08%.
- Foreign equities continue to underperform the U.S on a YTD basis, yet for the month and quarter Emerging Markets (+6.7%, 8.7%) trounced the U.S., surpassing the S&P 500 performance by 4.5% and 2.8% respectively. Internationally, the MSCI EAFE Index reversed prior period losses to end positive in September (+0.92%) and for the quarter (+7.26%).
- The Bloomberg Commodity Index rose 4.86% in September, while netting a 0.68% Q3 gain. Commodities are up 5.86% YTD.
- S&P GSCI Gold climbed 12.93% in the third quarter, its strongest quarterly gain since Q1 2016. The gold index is up 27.22% YTD. Spot gold ended the quarter at $2,659/oz., slightly below a fresh record high of $2,685 the week prior. S&P GSCI Crude Oil fell 11.73% in quarter, trimming its YTD gain to 5.74%.
Third Quarter 2024
Defying precedent of September historically being the worst performing month of year, all three major U.S. equity average posted solid monthly gains. For the S&P 500 it was the first positive September since 2019. Moreover, the S&P 500 is up just over 22% for the year – its first time since 1997 that the benchmark has risen 20% or more through the first nine months of the year. That’s a rare event, this happening just 10 times since 1950. The main bullish catalyst is overarching optimism that the Federal Reserve can continue engineering a soft landing by signaling and initiating the start of a new interest rate easing cycle.
At their September 17-18 FOMC policy meeting, Fed officials voted 11-1 to implement a super-sized 0.50% rate cut to a new Fed Funds range of 4.75%-5.00%. After interest rates had held steady at 5.00%-5.50% for 14 months, it was the Fed’s first easing decision since emergency rate cuts pushed interest rates near zero at the onset of the COVID-19 pandemic in March 2020. Prior to the pandemic, the Fed cut interest rates by 0.25% three times in 2019 after four rate hikes in 2018. Following this September’s initial rate reduction, the Fed’s so-called dot-plot of policymakers’ individual rate forecasts indicate further easing of another 0.50% by the end of this year and another full 1% reduction by the end of 2025, plus another two 0.25% rate cuts by mid-2026.
Clearing a path for a Fed rate cut, the most current personal-consumption expenditures (PCE) price index edged up 0.1% in August, matching forecasts but easing from +0.2% in July. From a year ago, headline PCE prices are up 2.2%, down from 2.5% the month prior. The Fed’s preferred inflation gauge, the core PCE price index that excludes food and energy, also rose just 0.1% in August while its annualized rate ticked up to 2.7% from 2.6%.
The Commerce Department’s third and final estimate of U.S. real GDP growth in the second quarter held steady at +3.0%, showing strong growth from a reduced +1.4% pace in this year’s first quarter. As measured by real GDP, the economy had expanded by 3.4% in the fourth quarter 2023. Strong corporate earnings are also helping boost investor sentiment. The second quarter earnings season is virtually complete with a consensus growth estimate pointing toward a 12.9% quarterly year-over-year earnings increase. This compares to an initial earnings growth pace estimate of 8.1% before the start of the earnings season.
Equity gains were however accompanied by increased volatility. For the quarter, the CBOE VIX Volatility Index jumped from 12.44 to 16.73 (+4.29 points, +34.5%).
As shown in the style box performance boxes below, mid cap Growth showed the strongest gain in September, outperforming its large cap counterpart by 0.50% (3.33% vs. 2.83% respectively). Small cap Value showed remarkable strength during the final two months of the quarter, going from being the smallest gainer (+0.06%) in September to the top performer on a quarterly basis, up 10.15%. Following 2024 trends, large cap Growth and large cap Blend are the top two style performers on a YTD basis, up 24.55% and 21.18% respectively.
Top & Bottom Performers
The Great Rotation continued with sector performance widely broadening in the third quarter with eight of 11 sectors outpacing the S&P 500, led by rate-sensitive sectors including Utilities (+19.37%) and Real Estate (+17.17%). Communication Services and Technology had led in the first half of the year, but they underperformed during Q3. Energy was the only sector that declined (-2.32%).
Consistent with the start of a new Fed easing cycle, the yield on benchmark 10-year Treasury notes declined during the third quarter, ending September at 3.786%, down nearly 0.59% since the end of the second quarter. Treasury prices climbed across the curve with corresponding yields falling.
In fixed-income performance, U.S. Treasurys (as measured by the Bloomberg U.S. Government Bond Index) advanced 1.2%, capping a fifth straight monthly advance, its longest stretch of price gains since 2010. The government bond index jumped 4.71% in the third quarter and is up 3.85% in year-to-date. Likewise, longer-term U.S. Government bonds jumped 7.81% in the third quarter, with the year-to-date return at 2.44%.
In other fixed-income assets, investment-grade bonds of all types (as measured by the Bloomberg U.S. Aggregate Bond Index) surged 5.20% for the quarter (+4.45% YTD). Non-investment-grade High-Yield corporate bonds performed best, leaping 5.28% in the third quarter (+8.00% YTD). Municipal Bonds (+0.99%) trailed Treasuries in September, but outperformed in the quarter, up 2.71%.
This report is created by Cetera Investment Management LLC. For more insights and information from the team, follow @CeteraIM on X.
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Glossary
The Bloomberg U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government–related and corporate debt securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and non-agency) debt securities that are rated at least Baa3 by Moody’s and BBB- by S&P. Taxable municipals, including Build America bonds and a small amount of foreign bonds traded in U.S. markets are also included.
The Bloomberg U.S. Municipal Bond Index covers the USD-denominated long-term tax-exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and pre-refunded bonds. Eligible securities must be rated investment grade (Baa3/BBB- or higher) by Moody’s and S&P and have at least one year until final maturity, but in practice the index holding have a fluctuating average life of around 12.8 years.
The Bloomberg U.S. Corporate High Yield Index measures the USD-denominated, non-investment grade, fixed-rate, taxable corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch, and S&P is Ba1/BB+/BB+ or below, excluding emerging market debt. Payment-in-kind and bonds with predetermined step-up coupon provisions are also included. Eligible securities must have at least one year until final maturity, but in practice the index holdings has a fluctuating average life of around 6.3 years.
The Bloomberg U.S. Government Bond Index is comprised of the U.S. Treasury and U.S. Agency Indices. The index includes U.S. dollar-denominated, fixed-rate, nominal US Treasuries and US agency debentures (securities issued by US government owned or government sponsored entities, and debt explicitly guaranteed by the US government).
The Bloomberg Commodity Index is a broadly diversified index that allows investors to track commodity futures through a single, simple measure. It is composed of futures contracts on physical commodities and is designed to minimize concentration in any one commodity or sector. It currently includes 19 commodity futures in five groups. No one commodity can comprise less than 2% or more than 15% of the index, and no group can represent more than 33% of the index (as of the annual re-weightings of the components).
The CBOE Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices.
The MSCI EAFE Index is designed to measure the equity market performance of developed markets (Europe, Australasia, Far East) excluding the U.S. and Canada. The Index is market-capitalization weighted.
The MSCI Emerging Markets Index is designed to measure equity market performance in global emerging markets. It is a float-adjusted market capitalization index.
The MSCI All-Country World Index (ACWI) is a market cap weighted index designed to represent performance of the full opportunity set of large- and mid-cap stocks across 23 developed and 26 emerging markets, covering more than 2,700 companies across 11 sectors and approximately 85% of the free float-adjusted market capitalization in each market.
The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 Index companies with higher price-to-book ratios and higher forecasted growth values.
The Russell 1000 Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 Index companies with lower price-to-book ratios and lower forecasted growth values.
The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe and is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.
The Russell 3000 Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market.
The Russell Midcap Index measures the performance of the mid-cap segment of the U.S. equity universe and is a subset of the Russell 1000 Index. It includes approximately 800 of the smallest securities based on a combination of their market cap and current index membership. The Russell Midcap represents approximately 31% of the total market capitalization of the Russell 1000 companies.
The S&P BSE SENSEX Index is a free-float market-weighted index of 30 well-established and financially sound stocks on the Bombay Stock Exchange, representative of various industrial sectors of the Indian economy.
The S&P 500 is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.
The Nasdaq Composite Index includes all domestic and international based common type stocks listed on The NASDAQ Stock Market. The NASDAQ Composite Index is a broad-based capitalization-weighted index.
The Shanghai Composite Index is a stock market index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange.
The U.S. Dollar Index is a weighted geometric mean that provides a value measure of the United States dollar relative to a basket of major foreign currencies. The index, often carrying a USDX or DXY moniker, started in March 1973, beginning with a value of the U.S. Dollar Index at 100.000. It has since reached a February 1985 high of 164.720, and has been as low as 70.698 in March 2008.
West Texas Intermediate (WTI) is a crude oil stream produced in Texas and southern Oklahoma which serves as a reference or "marker" for pricing a number of other crude streams. WTI is the underlying commodity of the New York Mercantile Exchange's oil futures contracts.