2024 Third Quarter Review and Outlook
Dear Clients,
As we move into the final stretch of 2024 the US economy continues to defy expectations with its resiliency. At a point in the cycle when many experts predicted a recession, GDP growth is running at roughly 3%, inflation has fallen close to the Federal Reserve’s 2% target, and unemployment is hovering at a lower than average 4% rate. Year over year earnings growth for the S&P 500 is tracking at roughly 9%, well above average.[1] Contrary to public opinion, which continues to perceive it negatively due to high food, consumer goods and housing prices,[2] the US continues to be the healthiest of the world’s developed economies.[3]
Both equities and bonds have rewarded investors this year, with the MSCI All Country World Index of global stocks up +18.66% and the Bloomberg US Aggregate Bond Index up +4.45%.
Most central banks are following the US Federal Reserve in its pivot to lower interest rates,[4] against a background of tepid, but still positive global economic growth. China, the world’s second largest economy, has introduced an aggressive suite of measures designed to stimulate local consumer demand, boosting emerging markets throughout Asia.
Outlook
Nine months into the year, 2024 has been surprisingly robust economically, but US political drama and global geopolitical tensions are undermining confidence.
Donald Trump and Kamala Harris appear to be in a dead heat, with right-wing election deniers preparing to contest any ballot box outcome that displeases them.
This week marked the one-year anniversary of the October 7 terror attacks in Israel, and its campaign to eliminate Hamas has spiraled into a regional conflict that has already drawn in the US military. Russia’s bellicosity has only intensified as it grinds out bloody victories in Eastern Ukraine while issuing increasingly threatening communiques to the NATO alliance. Meanwhile, China is stepping up provocations in the Taiwan Straits and South China Sea.
While concern is merited, investors would do well to bear in mind that major geopolitical conflicts dating back to the bombing of Pearl Harbor have resulted in average stock market declines of less than 10%, with a full recovery in under two months.[5] Furthermore, when wars broke out while the US economy was in a positive growth mode, as it is now, the average market gain twelve months later was +9.2%.[6]
Geopolitics aside, the US appears poised for a period of slower but sustained growth, modest inflation, falling interest rates, and broadening corporate profits. Last week’s strong employment numbers attested to the economy’s continuing strength.
The main risk to investment returns seems to lie more in the currently high level of stock prices than in macro-economic factors. Historically, above average stock valuations have led to lower-than-average investor returns in the subsequent one and five year periods.[7] What helps to offset this risk is that the bond market currently offers attractive yields, and bonds could rise in value if interest rates decline, which would be expected if a recession occurs.
LongView News
This September, LongView was proud to surpass $100 million in investment gains made for our clients since our start in late 2000. As we wrap up this twenty-fourth year in business, we are more committed than ever to helping our clients align their investments with their values and we continue to deepen our research into sustainable funds. By considering the impact of their investments, shareholders can be a force for positive change. We feel privileged to be part of this movement towards a more equitable and sustainable economy.
We wish you a beautiful fall and holiday season,
The LongView Team
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[1] https://am.jpmorgan.com/us/en/asset-management/protected/adv/insights/market-insights/guide-to-the-markets/
[2] https://www.pewresearch.org/politics/2024/09/09/economic-ratings-and-concerns/
[3] https://am.jpmorgan.com/us/en/asset-management/protected/adv/insights/market-insights/guide-to-the-markets/
[4] https://am.jpmorgan.com/us/en/asset-management/protected/adv/insights/market-insights/guide-to-the-markets/
[5] https://www.marketwatch.com/story/from-pearl-harbor-to-sept-11-heres-how-stocks-typically-react-to-the-outbreak-of-wars-36e6c412?mod=search_headline
[6] https://www.nytimes.com/2022/02/22/business/russia-ukraine-stock-markets.html
[7] https://am.jpmorgan.com/us/en/asset-management/protected/adv/insights/market-insights/guide-to-the-markets/