2024 Q3 Review
July brought some change to equity markets, with the megacap tech temporarily taking a back seat to U.S. small and international stocks. An early August carry-trade related shock in Japan, which sent global stocks lower, the Nikkei tumbling, and the yen rocketing back, was short-lived. Most global markets finished the quarter in positive territory, with U.S. small, mid, developed international, and emerging markets topping the S&P 500. Though megacaps took a back seat, they remained in the car. The Magnificent Seven still rose 5.4% in Q3.
China stocks jumped +23.7% in Q3 (largely in the last three weeks of September) after the country announced a stimulus package aimed at monetary policy, real estate, and the stock market. A big theme heading into the fall is the market presuming a dovish path for interest rates in the U.S. That expectation helped the more indebted who could potentially refinance cheaper (e.g., small-mid Cap stocks) and those who benefit from a weaker dollar (e.g., non-U.S. stocks).
Even before the Fed cut rates by 0.5%, markets began anticipating an aggressively dovish central bank in the coming quarters, helping bonds rebound strongly in Q3. The Bloomberg Aggregate Index rose more than 5% for the quarter, bringing YTD returns well into positive territory. Municipal bonds rose as well (+2.7%). The 10-year treasury finished September yielding just under 3.8%, continuing the roller coaster that had it as low as 3.6% and as high as 4.7% thus far in 2024. The bounce in core bonds did little to upset continued strength in satellite fixed income. High yield bonds rose 5.3% while bank loans rose 2.1%. Both remain ahead of core taxable bonds YTD. High yield municipals rose 3.2% during the quarter, extending their lead relative to core municipal bonds for the year.
The Fed cut and presumed dovishness also helped other risk assets. More levered areas like real estate and infrastructure saw some stability, with public leading private for the quarter. Private credit strategies put up another solid quarter, with fixed rate areas outperforming floating. In the commodities space, it was another quarter of haves and have nots. Crude oil and natural gas prices fell more than 10% in Q3, offset by a comparable rise in select precious metals and softs (e.g., coffee and sugar).
Source: Morningstar and Bloomberg Finance L.P. (data as of 9/30/2024)