2024 Q3 Market Review

By Schultz Collins Investment Counsel on October 23, 2024

Schultz Collins 3rd Quarter 2024 Market Review

Globally, stocks continued higher in the quarter, possibly due to increased optimism that the Fed may be winning the war on inflation and continued momentum behind lower rates is ahead. Perhaps the news that gained the most attention was the U.S Federal Open Market Committee’s decision to ease monetary policy by 50 basis points. 

The global stock market, as measured by the MSCI All Country World Index, rose 6.72% in the quarter, and ended the trailing 12-month period with gains of 32.27%.

In the U.S. market, the S&P 500 Index, an index of large company stocks, increased 5.89% for the quarter and 36.26% over the past 12 months. Small companies in the United States as measured by the Russell 2000 Index, increased more than large company stocks, up 9.27% and 26.70% over the trailing 12-month period. The Dow Jones U.S. Select Real Estate Investment Trust Index, a benchmark for U.S. real estate performance, ended the quarter up 15.56% and 33.63% over the previous 12-months.

There is a general theory that small cap stocks and REITs have greater sensitivity to changes in rates so the short-term relative performance of small company stocks and REITS versus large company stocks may not be a surprise to some.

Large and medium-sized company stocks in internationally developed countries, as proxied by the MSCI Europe, Australasia and Far East Index, outpaced the S&P 500 for the quarter with returns up 7.33%. For the trailing 12-month period, the index was up 25.32%.

Stocks in emerging market countries, as measured by the MSCI Emerging Markets Stock Index, led the other major global markets during the quarter with a return of 8.88%. For the trailing 12-month period, the index returned 26.48%.

International and U.S. bonds were higher in the quarter, again likely due to the positive inflation news. In the U.S., headline inflation reported by the U.S. Bureau of Labor Statistic, fell from an annual rate of 3.4% in April to 2.5% in the August. In the European Union, inflation has held steady at 2.4% for the last few months.

Returns in the U.S. bond market, as measured by the Bloomberg U.S. Aggregate Bond Index, rose by 5.2% in the third quarter and 11.54% for the trailing 12-month period. Intermediate-term corporate bonds, as proxied by the Bloomberg Barclays U.S. Corporate Bond Index, rose 4.66% for the quarter and 11.88% over the last 12-months.

The global bond market, as measured by the World Government Bond Index, increased 6.95% for the quarter and 11% in the trailing 12-month period.

Many market commentators see the 10-year Treasury note as a proxy for the sum of expected long-term inflation and real economic growth. This means lower inflation expectations may influence lower yields on the benchmark bond, and that is what we saw. At the beginning of the third quarter, the 10-year Treasury stood at 4.36%. By the end of the quarter, the yield had fallen to 3.81%.

Elections and Market Stragegy

Presidential election years come with uncertainty as voters evaluate proposed policies from the candidates. They may ask themselves, “Which candidate will seek to increase income taxes or decrease income taxes? Will the next administration impose budget cuts or increase government expenditures? Will tax incentives for businesses increase or decrease?”

For some voters, the answers may be based on stereotypes or bias associated with the Republican or the Democratic Party. For investors, those answers may tempt some to change or alter the equity strategy in their portfolio. But should the outcome of the Presidential election influence investors equity strategy?

Chart 1 shows the annualized return of the S&P 500 during each President’s time in office, starting with the Eisenhower administration and color coded to identify each President’s political affiliation. At the bottom of Chart 1 is a table showing the standard deviation and average annual return for the S&P index when each political party held the Presidency.

Return data is annual data based on 1/31 of the year each President assumed and left the office of the Presidency. Biden administration data ends 1/31/2024. S&P 500 inception was 1957. Eisenhower administration data is back-tested data from January 1953 to January 1957. Return data is from DFA 2.0 Returns as of 9/15/2024.

As the table illustrates, higher average annual returns coincided with Democratic Presidents; however, our statistical analysis indicates the large range of annual returns – volatility – makes it difficult for us to conclude the difference in returns between the two parties is statistically significant. This means the return data is not reliable and future returns could produce different results.

We would also like to highlight a simple point in the data: Both parties have been in power when average returns exceeded the long-term average of the index and both parties have held the Presidency when the S&P 500 produced below average returns.

To conclude, the Presidential election may be quite important to our daily lives and long-term future; however, while past average stock market returns under Democrat or Republican Presidents may tempt us to act in one direction or another, our analysis indicates that these returns may not be reliable, and investors should not allow the outcomes of the Presidential election to influence their equity strategy.

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