Traditionally considered a difficult time for equities, this third quarter defied expectations, particularly in September when an unexpectedly bold Federal Reserve interest rate cut fueled a rally in the stock market. Different trends emerged across asset classes – domestic equities, international markets, fixed income, and alternatives – reflecting the comprehensive but differentiated impact of evolving macroeconomic conditions.
The second quarter of 2024 started poorly, with the S&P 500 and NASDAQ indices experiencing their worst month since September 2023, and the Dow its worst month since September 2022. April’s sell-off was driven largely by various geopolitical concerns, notably Iran’s missile attack on Israel.
Before entering 2024, two questions dominated investors’ minds; could the mega-cap technology stocks continue to rise and support the market rally? Will the Federal Reserve (Fed) lower interest rates in March? As we sit at the end of the first quarter of 2024, we have the answers to at least some of those questions.
Despite initial 2023 forecasts expecting a recession, the U.S. economy has been stubbornly strong so far this year. However, even during periods of economic expansion, stock market values can, and inevitably will, correct lower. We were reminded of this simple truth during the quarter, with losses in both stocks and bonds due in part to surging interest rates, tighter lending standards, and elevated energy prices that continued to apply upward pressure to inflation.
Although seemingly forgotten now, the second quarter of 2023 was almost derailed by debt ceiling concerns. However, in the 11th hour, a deal was reached, allowing the government to pay its bills for now. From a market perspective, this deal should be viewed as unquestionably positive as it takes the debt ceiling issue off the table until 2025.
2022 proved to be a particularly challenging year for investors. The market narrative was shaped by stickier than expected inflation which forced global central banks to raise rates at the quickest pace in history.
There’s a saying I hear around the grass fields of youth sports from time-to-time, usually from coaches looking to get the most out of their players before a big game; start strong, finish stronger. While stock and bond markets got the start strong part right in the 3rd Quarter of 2022, the finish left a lot to be desired.
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After a strong rally through the second half of March, where the S&P 500 Index saw a strong gain of 8.56% from the mid-month bottom, selling in stocks resumed in April. There are a number of headwinds markets are dealing with at them moment, but the April selling was triggered primarily by what the market construed as a more aggressive Federal Reserve stance on interest rates and their attack on inflation, rising recession calls and concerns surrounding the lockdowns in China and the potential global economic impact.
As if investors needed more to contend with, having already been forced to digest the prospect of a hawkish Fed, higher interest rates, and stubbornly high inflation to begin the year, Russia did the unthinkable last month and invaded its neighbor Ukraine further unsettling an already skittish market.
