Quarterly Webinar: Q4 2024 Market and Economic Themes

Please join our Chief Investment Officer, Mike Minter, for our quarterly webinar (pre-recorded below) where we discuss ten relevant market and economic themes heading into the 4th quarter of 2024. We will also be recapping 3rd quarter 2024 performance and relevant metrics.

Click here for a PDF copy of the Q4 2024 Market and Economic Themes slides and important disclosures.

Quarterly Webinar: Q4 2024 Market and Economic Themes

Video Summary Below

Q4 2024 Market and Economic Themes

Introduction and Themes Overview

• The webinar focuses on key market and economic themes for Q4 2024.
• The approach shifts from just discussing performance metrics to identifying relevant market themes for the current and upcoming quarters.

Asset Class Returns (Q3 2024 Recap)

• The third quarter saw strong performance across most asset classes, including large-cap and small-cap stocks, bonds, and foreign markets.
• Commodities were the only area that pulled back slightly.
• Small-cap stocks had a strong quarter, reversing previous struggles as interest rates stabilized.

Key Market Events Timeline (2024)

• Despite volatility, the S&P 500 gained over 20% in 2024, nearing all-time highs.
• The rise of AI stocks, particularly Nvidia, drove early market gains, but inflation concerns and bond market struggles emerged later.
• AI stocks experienced a slight downturn as investors questioned the cost of AI development versus future returns.
• Market volatility increased in August due to a small rise in unemployment, but stocks quickly rebounded by the end of the third quarter.

S&P 500 Performance Methods

• Comparison between the market cap-weighted S&P 500 (influenced by big companies) and an equal-weighted version.
• Initially, larger companies drove the index higher, but by the end of Q3, smaller and mid-sized companies caught up, narrowing the performance gap.
• The market saw broader participation in the rally, signaling healthier overall market conditions.

Federal Funds Rate and Interest Rate Trends

• The Federal Reserve’s interest rate cuts since 1985 are compared to recent rate hikes.
• Rates jumped by 5% since March 2022 as the Fed fought inflation.
• The first interest rate cut of 2024 occurred in September as inflation eased, but unemployment started to rise.
• Further rate cuts are expected into 2025, with investors predicting another 0.5% reduction by the end of 2024.

Market Predictions for Rate Cuts

• The market often underestimates how much the Fed will cut rates.
• Current expectations suggest a 1.9% rate cut, driven by falling inflation and rising unemployment.
• Historical data shows that larger-than-expected rate cuts occur if the economy weakens, but fewer cuts may happen if it remains strong.

S&P 500 Performance Before and After Rate Cuts

• Historical data on how the S&P 500 performs before and after the first rate cut.
• If no recession follows, the market tends to grow by about 23% in the following year. If a recession occurs, returns may drop to -4%.
• The trajectory of the stock market will depend on whether the economy avoids a recession after the rate cuts.

Economic Indicators (Manufacturing, Housing, Consumer Credit, and Retail Sales)

• Manufacturing PMI: Shrinking due to high interest rates, with PMI staying below 50.
• Housing Starts: New home construction has slowed as higher mortgage rates made homes less affordable.
• Consumer Credit: Growth in borrowing has stalled due to higher interest rates.
• Retail Sales: While growth has slowed, consumer spending remains strong, a key driver of the economy.

Labor Market Conditions

• A comparison of today’s labor market with pre-pandemic levels and historical averages.
• Job openings remain strong but have declined from 2022 peaks.
• Job growth is slower but still near historical averages.
• Wage growth has slowed but remains stronger than pre-pandemic levels, and the unemployment rate has risen slightly.

Recession Mentions in Earnings Calls

• The frequency of companies mentioning “recession” in earnings calls spiked during early 2022 due to rate hikes but has since declined.
• The drop in recession-related discussions aligns with improving market conditions and reduced concerns about an imminent recession.

Impact of Presidential Elections on the Stock Market

• Historically, the outcome of presidential elections does not significantly impact long-term market performance.
• Political headlines have minimal influence compared to factors like corporate earnings, inflation, and interest rates.
• The data suggests that staying invested regardless of who is in office is the best long-term strategy.

Stock-Bond Correlation and Diversification

• The correlation between stocks and bonds has varied over time.
• Recently, stocks and bonds have moved in sync, reducing the diversification benefit.
• However, as inflation falls and interest rates come down, bonds are starting to offer more protection, potentially returning to their traditional role as a hedge during stock market downturns.

Closing Remarks

• The webinar concludes with a reminder to focus on long-term investment strategies and the importance of monitoring economic and market trends as they evolve.
• The team encourages clients and prospective clients to reach out for further discussions on financial planning and investment needs.

Concerns or questions about how your investment portfolio will hold up in the current market environment? Contact Financial Synergies today.

We are a boutique, financial advisory and total wealth management firm with over 35 years helping clients navigate turbulent markets. To learn more about our approach to investment management please reach out to us. One of our seasoned advisors would be happy to help you build a custom financial plan to help ensure you accomplish your financial goals and objectives. Schedule a conversation with us today.

More relevant articles by Financial Synergies:

• Your Move, Fed
• Quarterly Webinar: Q3 2024 Market and Economic Themes
• Chart of the Month: Market Volatility is the Price of Admission for Investing

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