Global equity and fixed-income markets kicked off the third quarter with a downturn, but a powerful rally followed, generating strong returns across all major asset classes. What began on a subdued note quickly transformed into an eventful and highly positive quarter for investors.
While market activity was significant, the political developments may have left a more lasting impression. On July 13th, during a rally in Pennsylvania, former President Donald Trump narrowly survived an assassination attempt, suffering a gunshot wound to his ear. Remarkably, Trump evaded another assassination attempt in September. On the Democrat side, President Joe Biden made history by withdrawing from the 2024 presidential race, endorsing Kamala Harris in his place. It marked the first time a sitting U.S. president has dropped out of a re-election bid since Lyndon B. Johnson in 1968. Trump and Harris subsequently finalized their tickets, endorsing JD Vance and Tim Walz as their respective vice presidential running mates, setting the stage for an interesting November election.
On the economic front, the Federal Reserve, signaling growing optimism about cooling inflation and aiming to stave off a potential slowdown in the labor market, enacted a bold rate cut of 0.50% in September. This marked the first rate reduction since 2020, and the first half-point cut since the 2008 financial crisis. Although some analysts had expected a more modest 0.25% reduction, the Fed’s more aggressive stance was a catalyst for the strong performance seen in both equity and bond markets during the quarter.
In similar fashion to the Fed, the Bank of England and the European Central Bank both cut interest rates by 25 basis points during the quarter. However, in contrast, the Bank of Japan took a different approach, raising rates instead. This divergence triggered a brief but sharp selloff in global equity markets, as traders and companies with large positions in yen scrambled to adjust to the new conditions.
In a significant move late in the quarter, China’s central bank unveiled a new stimulus package aimed at jumpstarting its struggling economy. Though the long-term impact remains uncertain, the announcement had an immediate effect on Chinese markets. China’s blue-chip stocks surged 15% over a single week, with other key indexes also posting strong gains in response to the optimistic outlook.
Meanwhile, oil markets experienced a dramatic downturn in the third quarter. In September, Brent crude, the global benchmark, saw its largest monthly decline since November 2022, dropping 17% over the quarter. WTI (West Texas Intermediate) followed suit, tumbling 7% in September alone—its sharpest monthly decline in nearly a year—and closing the quarter down 16%.
Thirty-year fixed-rate mortgages saw a steady decline throughout the quarter. In late June, rates hovered around 6.8%, but by the end of September, they had dropped closer to 6.1%. This consistent downward trend may help alleviate some of the affordability pressures in the housing market, potentially making homeownership more attainable for many buyers who have been sidelined by higher borrowing costs in recent years.
THIRD QUARTER EQUITY INDEX RETURNS
US equity markets had a strongly positive quarter with the value and small cap premiums performing well. This reverses a trend in the premiums over the first half of the year. The premiums in international markets behaved similarly, but international markets outperformed US markets from a total return standpoint. Emerging markets also posted strong returns for the quarter.
THIRD QUARTER ALTERNATIVE INDEX RETURNS
Global REITs have roared back since their significant decline in 2022. During the third quarter, the asset class returned 16%, bringing the trailing twelve-month return to more than 30%. US high yield bonds returned more than 5% for the quarter, bringing the year-to-date gain to 8%.
THIRD QUARTER FIXED INCOME INDEX RETURNS
Falling interest rates across the maturity spectrum drove prices higher for US bonds. The US Aggregate Bond Index has now returned over 11.5% during the last twelve months. Inflation-protected bonds and municipal bonds also had a good quarter, with strong positive trailing twelve-month returns.
Our thoughts are with those of you who have suffered during this active hurricane season. We hope you are all safe, and we look forward to some relief this winter. If you have any questions regarding your portfolios, markets, or anything else, please call or send us an email. We look forward to being in touch through the holiday season!