2024 Q3 Commentary

John McHugh |

Highlighted Strategy:

 

The WealthTrust DBS Long Term Growth Strategy continues to outperform. Its Year-To-Date Performance is currently ranked #25 out of 1514 Strategies on the SMArtX Platform.

As indicated below, our team was early in identifying home builders and their a major supplier, Builders Firsts, representing the top three performing companies in the quarter.

The benefit of utilizing A.I Momentum verified by our 21-year history of Quantitative and Fundamental Analysis has proven to be extremely beneficial in our buy and sell analysis.

 

Overview: In the third quarter of 2024, US equity markets demonstrated resilience, with all major indices finishing higher. The S&P 500 continued its steady ascent, marking its fourth consecutive quarterly gain and reaching near-record levels despite some volatility. The Nasdaq, although positive, lagged behind, while small-cap stocks, represented by the Russell 2000, saw their second-best quarterly performance since early 2021, with an 8.9% surge.

Sector performance showcased a broader market rally, as homebuilders, regional banks, asset managers, utilities, and several industrial segments outpaced the market. The equal-weighted S&P 500 ETF (RSP) also outperformed its cap-weighted counterpart, rising 9.1%, as some mega cap stocks, which had driven gains earlier in the year, began to see more modest advances.

 

WealthTrust Long Term Growth Portfolio Quarterly Top 10

 

Market Drivers: The quarter was marked by shifting market dynamics, primarily driven by the Federal Reserve's pivot towards an easing cycle. This shift was bolstered by expectations of a soft economic landing and falling inflation. After a dovish Federal Open Market Committee (FOMC) meeting in July, expectations for rate cuts in 2024 strengthened. Fed Chair Jerome Powell's speech at the Jackson Hole Symposium in August signaled that the time had come for policy adjustments, reassuring markets about the Fed's commitment to economic stability.

While concerns surrounding the labor market emerged after July's weak payrolls report and rising unemployment, other economic data, such as retail sales, showed continued strength, helping to sustain investor confidence. Meanwhile, corporate earnings delivered robust results, with S&P 500 companies posting 11.3% year-over-year earnings growth in Q2, and a majority of companies beating earnings expectations.

 

Sector Highlights

  • Homebuilders and Banks: Anticipation of the Fed's rate cuts buoyed homebuilders, while regional banks like the KBW Regional Banking Index (KRX +14.8%) and broader financials outperformed, with the KBW Bank Index (BKX +9.5%) also posting strong gains.
  • Industrials and Utilities: Industrials and utilities were among the top-performing sectors, with utilities surging 18.46% and industrials gaining 11.15%. These sectors benefited from both the expectation of lower interest rates and defensive positioning by investors seeking stable returns in a more uncertain macro environment.
  • Technology and Energy: In contrast, technology stocks, which had led much of the market's earlier rally, underperformed. The "Magnificent 7" tech giants posted mixed results, with Google parent Alphabet (+9.0%) leading the pack, while Nvidia (+1.7%) lagged. Energy stocks also underperformed, with oil prices seeing their second-worst quarter since 2022 as concerns over rising OPEC+ production and slowing Chinese demand weighed on the sector.

 

Treasuries and the Dollar: Treasuries saw firming, with a notable steepening of the yield curve. The long-inverted 2-year/10-year spread flipped back to positive territory, signaling that markets were pricing in lower recession risk. The US dollar weakened sharply, with the Dollar Index (DXY) posting its worst quarter since late 2022, driven largely by the Bank of Japan's significant rate hike and a broad unwinding of yen carry trades.

Commodities: Gold was a standout in the commodities market, gaining 14.7%, its strongest quarterly performance since Q1 2016, as it hit multiple all-time closing highs. On the other hand, crude oil (WTI) dropped 16.4%, reflecting concerns about global supply and demand imbalances, particularly related to China’s slowing economy.

Looking Ahead: The outlook for Q4 and beyond remains focused on the Federal Reserve's next moves, particularly the pace of rate cuts and their impact on economic growth. Disinflation continues to be a key bullish theme, along with resilient consumer spending, stable earnings growth, and the ongoing secular growth narrative around artificial intelligence (AI). However, market valuations remain elevated, and concerns about slowing job growth and consumer confidence could weigh on investor sentiment.

 

S&P 500 Sector Performance in Q3 2024:

  • Outperformers: Utilities +18.46%, Real Estate +16.29%, Industrials +11.15%, Financials +10.22%, Materials +9.20%, Consumer Staples +8.28%, Consumer Discretionary +7.59%, Healthcare +5.65%
  • Underperformers: Energy -3.12%, Communication Services +1.42%, Technology +1.44%

 

As we move into Q4, the key question for investors is whether the Fed’s dovish pivot and potential rate cuts will sustain the bullish momentum or if somewhat elevated valuations and macroeconomic uncertainties will lead to a more challenging market environment. Our job is to interpret these events and react accordingly.