Monthly Market Commentary

These monthly market commentaries share a synopsis of the U.S. financial markets with intelligent insights.

October 2024 Market Recap

Coming off a great third quarter for investment markets, a flat to negative market environment was not surprising.  In fact, historically the S&P 500 has averaged a -0.8% October return in presidential years so this year’s -0.9% return was right on trend.  What may have been a surprise to some is the sudden rise in interest rates during the month despite the Fed’s sizeable rate cut late in September.  The US 10Yr Treasury yield rose 50bps due to rising concerns about the expanded fiscal spending that will be required to support the economic plans of either presidential candidate.  After years of borrowing at artificially low interest rates, the US government is being confronted with rising interest costs on a massive amount of debt.  This has spooked the bond market and in turn weighed on equity markets here and abroad. To add to the increased level of uncertainty, the next Fed meeting concludes the day after the election.  With recent economic data showing mixed or incomplete signals and the rise in interest rates in October, the Fed’s decision may take on even greater importance as a signal to investors.

The final day before the election and the weeks after will likely see greater market volatility.  We will attempt to decipher the impact of the election results on fiscal and monetary policies and position your portfolios accordingly. 

Here are a few observations about what occurred across the public markets during the month and third quarter.

Overall

• The S&P 500 Index was down -0.9% in October, up 21.0% YTD, and 38.0% on the trailing one-year. 
• The MSCI ACWI ex USA MSCI Index was down -4.9% in October, up 8.6% YTD, and up 24.3% on the trailing one-year.
• The Bloomberg Aggregate Bond Index was down -2.5% in October, up 1.8% YTD, and 10.6% on the trailing one-year.

Domestic Equity

• Equity returns generally ended in the red in October, driven by mixed earnings results, a backup in interest rates and uncertainties related to the pending election. This underperformance aligns with historical trends, as the average S&P 500 return for October in presidential election years is -0.8%.         
• Small-cap and value stocks struggled to maintain their Q3 rallies, lagging behind larger cap growth stocks in an overall flat to negative market environment.  The small positive gain in Mid Cap Growth is the result of a big month for a small number of index names.  

International and Global Equities

• Foreign-developed markets stocks greatly underperformed US stocks because of economic slowdowns and the strengthening of the dollar. Some of the worst-performing countries include France (-6.38%), Switzerland (-5.49%), and the United Kingdom (-5.49%).
• Emerging markets also posted negative returns in October but outperformed developed overseas stocks. China’s stock market experienced a significant drop due to unfulfilled expectations of government support. 

Fixed Income Markets

• Bond market indices were negative in October, driven by political uncertainty and economic concerns. The yield on the 10-year US Treasury increased 50 bps in October to 4.29% as investors' concerns grew about expanding fiscal spending.

Specialty Markets

• The streak of positive returns for REITs came to an end as interest rates rose. Commodities posted mixed returns, despite gold reaching a record high of $2,700 per ounce.

US Equity Sectors

• Sector performance was mixed as most delivered negative returns while Communication Services, Energy, and Financials were the notable exceptions. The hardest-hit sectors were Health Care, which declined by 4.62%, and Materials, which fell by 3.49%.

Dear Valued Investor,

Donald Trump was elected the 47th president of the United States, defeating Vice President Kamala Harris thanks to strong performance in key swing states that gave him 277 electoral votes to 224 for Harris (according to The Associated Press, while five states have yet to be called). The gains at the top of the Republican ticket filtered down to state-level races, where Republicans achieved a majority in the Senate by flipping three seats to take a 52-seat majority, with several tight races still yet to be called. House control is still up in the air, but Republicans appear headed for a razor-thin majority and a GOP sweep.

For investors, achieving an outcome and removing the cloud of uncertainty is, in and of itself, a positive development. If the economy is on solid footing, as it is currently, stocks have historically reacted positively to election results regardless of outcome. We expect this time to be no different. Historically, the S&P 500 has generated an average gain of 6.5% in the year following Election Day.

Those concerned about post-election volatility can also take comfort in the fact that the best six-month period for stocks has begun. From November through April, the S&P 500 has historically generated an average gain of 7.2%. Even in post-election years, returns during these six months have been above average at 5.3%. With the economy and profits growing, inflation easing, and more Federal Reserve rate cuts coming, potential volatility around the transition of power could present a buying opportunity.

In terms of policy implications, the tax cuts enacted by then-President Trump in the Tax Cuts and Jobs Act of 2017 will expire at the end of 2025. Trump has stated he plans to extend them, though some revenue offsets, including tariff increases, are likely to limit the additional deficit spending. His America-first agenda could cause volatility in international markets, notably China, put some upward pressure on domestic prices through tariffs, and help the more domestic-focused small cap stocks (which are surging this morning). Finally, deregulation efforts may support certain segments of the energy and healthcare sectors as well as financial services and cryptocurrencies.

As we begin to put an emotional election behind us, the start of President Trump’s second term will be met with a healthy economy supporting strong corporate profit growth. The clarity of an election outcome and favorable seasonality will likely help support stocks in the near term, even after the initial bump, as the transition of power takes place. The political divisiveness won’t necessarily go away now that the election is over, but let’s hope we can make more progress bridging our divides.

Please let us know if we can answer any questions for you regarding your financial situation.

Thank you for your trust and support.

Sincerely,

 
Scott Krase