October 1, 2024
Stock market volatility picked up during the third quarter, with investors rotating out of technology shares and into value and small capitalization stocks that were left behind when technology shares surged higher during the first half of the year. Conflicting reports on the state of the economy also contributed to the increase in market volatility. The report of weaker than expected job growth the morning of August 2nd triggered a total decline of nearly 5% in the S&P 500 from August 1 through the close on August 5. However, the stock market recovered quickly as subsequent reports of unemployment claims and retail sales suggested the economy remained healthy. The Federal Open Market Committee’s decision to lower the Fed Funds rate by half a percent in September also provided support to the financial markets. In the end, the S&P 500 registered a gain of at least one percent each month of the quarter and is on track for a gain of more than 5% for the quarter overall.
Although the financial markets are likely to become even more volatile as the Presidential election draws closer, we remain optimistic about the stock and bond markets’ long-term prospects. First and foremost, the US economy is healthy and likely to remain so, particularly with Federal Reserve having begun cutting short term interest rates. Second, investment valuations outside of the technology sector continue to be attractive. For further details on each of these points, please see below.
The Economy:
- At 4.2% the US unemployment rate remains near historical lows and the economy continues to add new jobs each month – suggesting the labor market remains healthy.
- Recent reports show the rate of inflation nearing the Federal Reserve’s target. Federal Reserve governors have shifted their focus to the labor market. Additional reductions in the Fed Funds rate may occur before the end of the year.
- Corporate earnings are on track to grow by 9% or more during 2024.
Investment Valuations:
- Investors have begun to reassess the valuations of technology shares. Many stocks outside this sector have attractive valuations. This is a great environment for active stock managers.
- Bonds are attractively priced. With the rate of price inflation continuing to decline and the Fed signaling further reductions in borrowing costs before year end, it is likely bonds will appreciate during the final quarter of the year.
This report has been generated from information that Arbor Financial believes to be reliable and accurate. We do not represent or warrant the accuracy or completeness of the information contained in this report. As such, all calculations, estimates, and opinions included in this report constitute our best judgment as of this date and may be subject to change.
Peter has more than 25 years of experience in the financial industry as a researcher, strategist, and portfolio manager. As a portfolio manager at Arbor, Peter performs quantitative analysis on current and prospective portfolios.
Peter is a CFA charter holder. He earned his PhD in Economics as well as dual Bachelors of Science degrees in Computer Science and Pure Mathematics from the University of California, Santa Barbara.
Before joining Arbor, Peter was a Founding Member of institutional money manager OakBrook Investments and worked there for 22 years serving in a variety of roles including portfolio manager, Director of Research, and co-Chief Investment Officer. Prior to forming OakBrook, Peter worked at ANB Investment Management & Trust Company as a strategist, portfolio manager, and Head of Research.
Peter has lived in Lisle, Illinois since 1997. Outside of work he enjoys sports car racing and is an active member of the Autobahn Country Club in Joliet, Illinois and the Sports Car Club America (SCCA).