Q3-2024 Market Results
It was another good quarter for the stock market and client portfolios. For the quarter, the S&P 500 was up +5.89%, continuing its strong run this year. International markets were up even more for the quarter, at +6.57%. Emerging markets were up even more, at +7.78 %. Bonds were up an impressive +5.20% for the quarter. Short treasuries were also up nicely, at +2.92% for the quarter.
A closer look at the markets shows the S&P 500 with a slight dip at the end of August, but otherwise, it was a consistent quarter with an uptick at the end of the quarter. U.S. Technology had a similar run but was not as strong as the S&P 500 for the quarter. Bonds are finally starting to show some recovery, as we’ve been talking about for some time. Bonds showed a steady increase over the quarter. It is likely tied to the recent interest rate reduction from the Federal Reserve (Fed).
Q3-2024 Notes
The U.S. continues its impressive recovery from the challenges of the COVID-19 pandemic. In the first quarter of 2024, Gross Domestic Product (GDP) came in at +1.6% and the second quarter at +3.0%, and the most recent estimate for the third quarter is +2.5%. Although not staggering, this is good growth considering how fully developed the U.S. economy is.
Unemployment remains low, though up slightly over the last year. August unemployment came in at +4.2%. On employment, the U.S. added +254,000 jobs in September, which was a very strong month. The average new monthly employment in 2024 is +192,000 jobs. The labor market remains heated.
Although we are still concerned about the risk of recession, we feel the aggressive decision by the Fed to reduce interest rates by 0.50%, 50 basis points, at their last meeting is a good sign. Although it takes time for interest rate changes to cycle through the economy, we will watch to see if we appear to be moving closer to the magical soft landing, where we reduce inflation and overall economic activity without entering a recession.
With the U.S. Presidential election only a month away, we are in full campaign mode. With Robert F. Kennedy Jr. officially out of the race, it is solely between the Republican candidate, former President Donald Trump, and current Vice President Kamala Harris. Both sides have staked their ground and are relentlessly traveling the country to communicate their message. By all appearances, it will be a very tight race, with millions of people voting for each candidate. By the next Client Letter, we will have an answer.
Global Outlook
Our global topic for this letter brings us back to a topic we’ve discussed before…the war in Ukraine. Looking at the big picture we see Russia having success in eastern Ukraine while Ukrainian forces have made substantial territory gains inside Russia proper in the Kursk region. What this essentially means is that Ukraine has diverted forces from protecting its eastern region to going on the offensive in Russia and taking the Kursk region. The taking of the Kursk region represents one of the most successful offensive attacks from Ukraine since the war started. These are strategic choices made knowing that some degree of gain can be had in one area while suffering losses in other areas. Russia is making similar strategic choices by not sending large personnel forces to push Ukraine out of Kursk and focusing its forces on eastern Ukraine to make further gains.
All wars are fought making these kinds of strategic choices. Many experts believe these strategic choices could lead to an end to the war. With Ukrainian forces entrenched on Russian territory Russian President Vladimir Putin will have to decide where to shift his resources. Although some Russian counteroffensives have gone to Kursk, the region is still dominated by Ukraine. Will President Putin choose to negotiate an end to the war to remove Ukrainian troops from his country?
In eastern Ukraine, Russia has captured the town of Vuhledar. Vuhledar is part of the Donetsk region, and although not strategically important, it represents a significant loss for Ukraine in that Russia has been trying to take the town since the war began. Ukraine has successfully held them off until now. Will this Russian victory be what Ukrainian President Volodymyr Zelensky needs to consider negotiating an end to the war? We feel that while Ukraine and Russia have reason to consider a negotiated settlement, we don’t think we are close to seeing it. Russia still has lots of men and military arms to continue the fight, and Ukraine is struggling with both men and arms.
Further, unlike Russia, which is able and willing to strike targets anywhere in Ukraine and not only kill residents but damage infrastructure to the point of crisis for other residents, Ukraine is not allowed to use foreign arms to strike deep into Russia. U.S. President Joe Biden has been consistent in not allowing Ukraine to strike deeper into Russia to avoid what the North Atlantic Treaty Organization (NATO) fears could escalate a Russian response.
Considering that Russia is a nuclear power, there are concerns about Russia using nuclear weapons in response to potential deeper strikes into their country. This has become an item of strain for Ukraine as they believe the only way for them to win the war is to strike deep into Russia and punish them further. And make Russia shift resources away from eastern Ukraine to protect Russia proper. We expect some added flexibility from Washington for Ukraine to make gains and prevent more significant losses.
In a related topic, Ukraine now has U.S. F-16 fighter planes to help them with air defense. The U.S. and other allied countries have supplied these planes. Although these are older F-16 planes and may not be as advanced as more recent Russian planes, they offer Ukraine a better chance at defending its airspace. Ukraine does not yet have air superiority, and they may never, but at least they have a running chance. Similar to the rules Ukraine has for attacking deeper into Russian territory, Ukraine has limits on how far it can use its F-16s in Russia. Again, the worry is Russian escalation. Our bottom line is that Ukraine has made impressive gains against Russia while suffering losses as well. Ukraine continues to punch above its weight, but the idea it can fully resist and defeat the Russian invasion seems unlikely.
Disclosure: Past Performance is no guarantee of future performance
