By: Darren W. King | Wealth Management
Source: Bloomberg, Inc.
Key Takeaways:
- 2024 Fed GDP estimates move higher, up to 2.0% real growth in 2024, well above late 2023 estimates at 1.4%
- Fed cuts interest rates by 50 basis points in September and begin a policy pivot. Fed funds at 5% today and forecasted to be 3.5% by year-end 2025
- S&P 500 up 6% in 3rd quarter. Global and small capitalization markets earn between 7% to 9%
- The Core Consumer Price Index ends 3Q2024 at 3.2%, down from 3.8% in the 1Q2024
- Unemployment finishes September at 4.1%, down from 4.3% in July
Equity Strategy
We are expecting a more normalized return environment for equities for the remainder of 2024 with valuations needing to also normalize after the strong rally over the past nine months. However, we do see a continued broadening of equity returns out of technology and AI themes and into other areas of the market that have not participated. Current S&P 500 earnings estimates for 2025 are forecasted to grow by 15% and remain above trend. Equity markets believe economic growth is strong enough and inflation is falling fast enough for the Fed to rescue lofty equity valuations. An orderly return to a more normalized rate environment could prove to be a powerful catalyst for equities to avoid any major market correction in the near term.
Fixed Income Strategy
Within the fixed income markets, interest rate, fed policy, and market traders see two more twenty-five basis point interest rate cuts this year, following some slowing in hiring and inflation moving closer to the fed’s 2% target. Ten-year treasury rates are currently at 4.02% as of October 7, up twenty-seven basis points from the end of the third quarter, but down substantially from earlier this summer. The corporate bond market is still offering yields north of 4.5% for intermediate to longer maturities. We see rates moving lower over the intermediate term, and we see current interest rate levels as an opportune period to extend portfolio duration, invest excess cash in fixed income markets, or take some profits from equity portfolios to add to fixed income exposure.
Click here to read the entire Q3 2024 Market Review.
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