2024 Q3 Market Commentary: What's Not to Love?

We often say that owning a diversified portfolio means always owning something you aren’t happy with. So far in 2024, you’d be hard pressed to find anything in your portfolio like that. Every major asset class has posted positive returns this year, with many in double digits. In the third quarter, US Large-Cap stocks were up almost 6%, while US Small-Cap stocks were up over 9%. International developed stocks were up about 8%, and emerging market stocks were up close to 9%. After two straight quarters of negative returns, REITs bounced back in a huge way with a return of around 17%.

Compared to these stock market returns, you might think bonds would be the part of your portfolio you hate. And yes, bond returns pale in comparison, but the US Aggregate bond index and high-yield bonds were both still up over 5% in the third quarter, while TIPs were up over 4% and T-bills were up 1%. Alternative assets also posted positive returns, with Gold up 16% and commodities up 1%.

You might not realize this, but it’s now been two years since the most recent bull market “officially” started on October 12, 2022. A few days before that, in our third quarter 2022 market commentary, we pointed out that the AAII sentiment survey was at its lowest level since the global financial crisis. Since that time, the S&P 500 is up 62%, and you can see in this chart from Callie Cox how those returns compare to past bull markets. While investor sentiment has improved since 2022, it is still just marginally optimistic. This bull market doesn’t appear to be a built on rampant speculation or overly optimistic enthusiasm about stocks.

It's impossible to pinpoint exactly what causes the market to go up or down, but we can look at the broader economy for some clues. Despite the popular opinion that our economy is in bad shape right now, most indicators are quite positive. Inflation, as measured by US Headline CPI, has come down from a peak of 9.1% to just 2.4%, while the unemployment rate remains well below the historical average at 4.1%. GDP growth was estimated at 3.2% in the third quarter, and corporate earnings growth remained strong. This strong earnings growth means that even though stock prices are up quite a bit over the past few years, they are actually cheaper when looking at their Price/Earnings (PE) ratio, as can be seen in this chart from Matt Cerminaro.

While everyone should be relatively happy with both the economy and their portfolios right now, we know that most people are more focused on the upcoming election and what impact that might have on their finances. Current polling data shows the two presidential candidates running neck and neck. Both the Senate and the House of Representatives are also up for grabs and could swing to either side. We don’t try to predict what will happen in the markets, so we certainly won’t try to predict what might happen in the election either.

What we do know is that no matter which side you are on, no matter how much you despise the other side, you shouldn’t let that impact your investment approach. The president doesn’t control what happens in the markets, and over the long term, returns are historically positive no matter who was in power. Even if you could predict who would win the election, that wouldn’t help you predict what will happen in the markets. The above chart comes from an excellent visual presentation by Dimensional Fund Advisors that looks at market returns and presidential elections. Each red or blue bar in that graph represents a month during which a presidential election was held and which party won. You’ll notice the red and blue bars are widely scattered across the different return columns, representing both positive and negative months for each.

We know over the next month, you will be inundated with scary political ads and sensational media reporting on the election. This will cause you to feel like you need to take some kind of action. There’s no way to completely avoid this, but our recommendation is to try to limit your media consumption as much as you can. Remember that both sides of the political aisle are Americans, and we are all in this together. We will get through this together, regardless of who wins in November.

-Chris Benson, CPA, PFS

The views expressed represent the opinions of L.K. Benson & Company and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. Please see Additional Disclosures more information.