3rd Quarter 2024 Market Commentary

Here is the word I would use to describe the S&P 500 this year: Wow! This market index, which is one of the most widely followed, rose another 5.89% in the past quarter and 22.08% year to date. For the full year from October 1, 2023, to September 30, 2024, the S&P 500 has gone up 36.35%. I am not sure what the final quarter will bring, but just to provide some perspective, the S&P 500 has not gone up 36.35% or more in a single year since 1995 when it went up 37.58%.

While there are risks to the economy, recent data does seem to suggest that the US economy is still growing. Jobs, while not as plentiful as last year are still available with the current unemployment rate having ticked down to 4.1%. The inflation numbers are due to be released this Friday, and the Consumer Price Index is expected to have risen by about 2.3% year over year which is close to the Fed’s 2% target. The Federal Reserve Bank dropped their benchmark short-term rate by 0.50% at their September meeting which frankly surprised me. With the robust job numbers, I think it’s likely that the Fed will be more careful about future rate decreases so they don’t overheat the economy.

The rest of the world has slowed down a bit more, with Europe and China both struggling with slow to non-existent growth. The European Central Bank has also lowered rates, and China is stimulating their economy. But when we look at valuations, the rest of the world looks historically cheap when compared to the US. This is illustrated in the following charts from JP Morgan.

The first chart illustrates how much cheaper international markets are when compared to US markets on a Price-Earnings ratio basis. The PE ratio shows how much you must pay for $1 of earnings. While the international markets are more expensive than the US markets by 17% on average over 20 years, today those markets are 36% cheaper. The right-hand chart shows something similar with dividend yield, which is another measure of how much a stock is worth. While this chart is more volatile over the past 20 years, it does show that the dividend yield on international stocks is 3.1% vs. the US 1.4%. Even if the US economy continues to perform better than international markets, its likely there will be a return to the average, and if so, international stocks are a bargain today. Of course, I have no idea when this will normalize, but with Europe stimulating its economy with lower rates, its likely a recovery will take place. China is in a different situation with a large property market slump with high levels of debt and a looming demographic problem. In the short term, they may be successful in stimulating their economy, but they have some long-term headwinds. At Cereus Financial Advisors, our portfolios are diversified internationally unless a client has specifically requested not to do so.

As we move to close out the year, the economy is humming along, but there are some risks: a contentious election; a war in the middle east which is only getting worse; a war in Ukraine where no settlement is in sight; a ballooning deficit and debt level in the US which neither political party wants to tackle. But let’s compare 2024 with 1995. Here are some headlines from 1995 according to the website Infoplease.com:

• Nerve gas attack in the Tokyo Subway kills 8 and injures thousands.
• War in Bosnia and Croatia, although a peace treaty was signed in October.
• The Oklahoma City Federal building was destroyed with a bomb by domestic right-wing terrorists.
• The unemployment rate was 5.6%.

The point is that there are always geopolitical risks and domestic unrest. The markets only listen to this at times and at other times, the markets seem to ignore the news. You can’t forecast how the markets will react to the risks of 2024.

The fourth quarter is a great time to do some tax planning to see if it makes sense to make some moves to either decrease taxes or take advantage of the current low tax rates to convert traditional IRAs to ROTH. If you are a Cereus client, please set up a meeting with us to discuss these and other financial planning issues.

As always, I would love to hear your comments or questions. Feel free to reach out to me or Mike Dunne. If we are not managing your investments, we would be happy to chat with you about doing so. Check out our website at www.cereusfinancial.com for disclosures and more information including other blog articles.

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