While the major U.S. stock market indices finished in positive territory in the 3rd quarter (Q3) of 2024, there was a marked performance divergence, driven by two selloffs (in early August and early September), periodic bouts of sector rotation, and a considerable broadening of the market. While mega cap technology stocks led the way for the first half of the year, the Nasdaq-100 Index1 lagged during the quarter, appreciating 2.1% compared to the more value-oriented Dow Jones Industrial Average2, which increased by a more substantial 8.72%. In addition, after narrowing in the 2nd quarter, market breadth improved materially as a more diverse basket of stocks led the S&P 500 Equal Weight Index3 higher by 9.6% compared to the 5.9% return of the market-cap weighted version of the index.4
For the first time in several quarters, international stocks kept pace with or exceeded the performance of their U.S. counterparts, with the MSCI World ex USA Index5 rising by 7.8% in the 3rd quarter. In advanced economies, Eurozone stocks benefited from resilient economic growth in most member countries and easing inflationary concerns, which in September prompted the European Central Bank (ECB) to cut the deposit rate for the second time this year. In Japan, by contrast, equities were pressured by tighter monetary policy and a stronger yen. Emerging market equity performance was robust, aided to a large extent by a late quarter surge in Chinese stocks resulting from the Chinese government’s late September announcement of its biggest monetary stimulus measures since the COVID-19 pandemic.
In Q3 2024, expectations of lower interest rates and the increasing probability of a larger than expected initial rate cut by the Federal Open Market Committee (the “Fed”), came to fruition on September 18th via the Fed’s decision to cut the federal funds rate by 0.50% or 50 basis points (bps) rather than the expected 0.25% or 25, which prompted a rally in the U.S. small-cap asset class. Consequently, after underperforming the three major domestic large cap indices in the first half of 2024 by a significant margin, the Russell 2000 Index6 appreciated by 9.3% during the quarter, handily exceeding the performance of both the S&P 500 Index and the Nasdaq-100 Index.
10-year Treasury yields fell for most of the quarter, bottoming out at 3.60% on September 16th, before rising to close the quarter at 3.78% compared to 4.34% at the end of Q2 2024. The marked decline in Treasury yields, easing inflation concerns, and the expectation of additional rate cuts in 2024 resulted in the Bloomberg Aggregate Bond Index7 appreciating by 5.2% in the 3rd quarter. The biggest gains came from long duration bonds, which tend to be more sensitive to changes in interest rates and interest rate expectations.
On the commodity front, the price of Brent Oil fell by 18.2% during Q3 2024. Oil’s sharp drop in July and August was primarily attributable to higher supply from OPEC+ and increasing concerns about global economic growth dampening demand. In the back half of September, OPEC+ production cuts, stronger economic indicators (particularly in the U.S. and China), and rising geopolitical tensions in the Middle East combined to result in a modest uptrend in crude oil prices to close out the quarter.
