Third Quarter 2024 Update

October 1, 2024

Key Points

• The US economy’s growth rate accelerated in the second quarter of 2024, and according to economists exceeded its potential once again. The consensus among economists is that the full-year real gross domestic product (GDP) growth rate will be approximately 3%.
• Stock investors continued to have a favorable opinion of the outlook for equities, particularly in light of the FOMC’s aggressive reduction in the target fed funds rate
• The FOMC at its latest meeting lowered the target range of its primary policy rate, the federal funds rate, by 50 basis points, to 4.75%-5.00%. This marks the first time since early 2020 that the FOMC cut the fed funds rate

3rd QUARTER 2024 MARKET COMMENTARY

Below, we’ve highlighted 2024 broad market returns for the current quarter and year-to-date time periods:

Source: Refinitiv

THE GLOBAL ECONOMY

The US economy’s growth rate accelerated in the second quarter of 2024, and according to economists exceeded its potential once again. The consensus among economists is that the full-year real gross domestic product (GDP) growth rate will be approximately 3%, driven in large part by immigration-related growth and gains in labor productivity. Within this context, the Bureau of Economic Analysis released the third estimate of the second quarter 2024 real GDP, a seasonally adjusted annualized rise of 3.0%, in line with the prior estimate, but a sizable increase from the previous quarter.

The employment situation cooled significantly in the quarter. The August employment report showed that employers added 142,000 jobs in the month, and that the unemployment rate was slightly higher at 4.2%. The Federal Open Market Committee (FOMC) lowered its federal funds rate target range by 50 basis points to 4.75% to 5.00% as inflation data has stabilized at levels that are still above target, but which are expected to show improvement. The FOMC also indicated it expected additional reductions amounting to 50 basis points in the remainder of the year.

EQUITIES

Stock prices were on balance higher for the fourth consecutive quarter, with gains broadly distributed. Stock investors continued to have a favorable opinion of the outlook for equities, particularly in light of the FOMC’s aggressive reduction in the target fed funds rate. In addition, investors have been heartened by a continued moderation of inflation from its 40-year high of two years ago. Stock prices meandered higher throughout the quarter, peaking in mid-July before falling into early August, and then resuming the uptrend once again through the end of the quarter. When the quarter ended, the S&P 500 Index had advanced 5.9%. International stocks also generated positive results during the quarter, and generally exhibited performance in line with that of US equities. The MSCI EAFE Index of developed markets stocks was higher by 7.3% and the MSCI Emerging Markets Index advanced by 8.7%

FIXED INCOME

The FOMC at its latest meeting lowered the target range of its primary policy rate, the federal funds rate, by 50 basis points, to 4.75%-5.00%. This marks the first time since early 2020 that the FOMC cut the fed funds rate. The consensus among analysts had expected a smaller reduction of 25 basis points, but the FOMC opted to start its easing cycle more aggressively. After inflation reached a 40-year high in June 2022, it has eased enough that the FOMC believed it could move ahead with a larger rate cut at this time. The committee also released its Summary of Economic Projections (SEP), which indicated that committee members expect there to be an additional 50 basis point reduction in 2024, which could translate into 25-basis point reductions at both the November and December meetings

Fixed income securities’ prices were higher (and yields lower) during the quarter, as the bond market continued to firm after the FOMC lowered the target range of the federal funds rate by 50 basis points, to a range of 4.75%-5.0%.

SUMMARY

The US economy has been showing signs of improvement and seems to have averted a recession for the time being. The consensus among economists is that the outlook for the fourth quarter of 2024 appears mixed, shaped by a combination of a continued moderating of inflation, a surprisingly aggressive FOMC, geopolitical risks, and the anticipation of the 2024 presidential election. The FOMC cut interest rates by 50 basis points by September, bringing the federal funds rate to 4.75%-5.00%, with expectations of further reductions for the remainder of the year and into 2025. These rate cuts reflect inflation that is down from its 40-year highs of two years ago, as well as resilient, but softening labor market conditions. Payroll gains were lower than expectations, but enough to continue to support consumer spending, albeit at a slower pace than earlier in the year. Despite the tight labor market, wage growth has moderated, easing inflationary pressures. Geopolitical concerns, particularly in the Middle East and the ongoing war in Ukraine, pose risks to global energy markets. Although oil prices have fluctuated, the potential for further disruptions remains, which could impact inflation and consumer sentiment. Additionally, trade tensions with China and uncertainty surrounding US foreign policy contribute to economic volatility. The upcoming 2024 presidential election is another factor adding uncertainty to the economic outlook. The combination of the extreme tightness of the races and the widely disparate policy positions of candidates Trump and Harris has meant many investors are adopting a wait-and-see approach until more clarity emerges about the election’s outcome and potential policy initiatives. The outcome of the election could affect fiscal policy, particularly regarding taxation, government spending, and regulation, all of which could reshape economic forecasts.

Information provided is for informational purposes only and should not be construed as investment advice. The views expressed are current only as of the publication date, are based on information that St. Clair Advisors believes to be accurate, and subject to change without notice. All investment decisions must be evaluated as to whether they are consistent with your investment objectives, risk tolerance and financial situation. St. Clair disclaims any liability for any direct or incidental loss incurred by applying any of the information in this publication. Indexes are unmanaged and one cannot invest directly in an index. Past performance is no guarantee of future results.

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