Q3 2024 Rose Capital AdvisorsMarket Commentary & OutlookThe Rose TeamOctober 17, 2024
What We Got Right and Wrong in Q3
What we Got Right:
“The Fed Begins Cutting Rates in September”
The Fed cut interest rates in September for the first time since the beginning of the Covid pandemic.
“Expect Softer Economic Data”
We expected a catalyst for the Fed to begin cutting rates in September was weaker economic data, particularly in the labor market.
“Strong Q1 Returns Historically Bullish for Rest of Year”
The S&P 500 rose 10+% in the first quarter for just the 10th time since 1970. In the previous nine years, the S&P 500 had a median full-year return of 28.6%.
“Short/Intermediate Bonds > Cash Before Fed Cuts”
With a Fed cut expected, we recommended investors allocate to Bonds over Cash. The Bloomberg US Agg rallied +5.2% in the third quarter and outperformed Cash.
“Yield Curve (10s and 2s) Disinverts”
The longest inverted yield curve on record for the 10-year and 2-year finally ended. This part of the yield curve had been inverted since July 2022.
S&P 500: Best Start to a Year Since 1997
US stocks are off to their best start to a year since 1997. US equities are on a five-month winning streak, in part to a broadening of the market and the Fed cutting interest rates for the first time since 2020. In looking forward, the market is entering a seasonally strong period but will have to contend with volatility around the US Election.
Bull Market has been Led by Mega-Caps
US stock performance has historically been strong in Presidential Election years. In fact, the stock market has only experienced two negative calendar years in a Presidential Election year, dating back to 1948. Those two negative years were in 2000 when the Tech Bubble burst and in 2008 during the Global Financial Crisis.
Recap of Third Quarter 2024: Change of Leadership
After a “soft” CPI print on July 11th, markets rotated out of Big Tech into more defensive oriented stocks with attractive valuations
Recap of Third Quarter 2024: What Changed?
Market (and Fed) Shifting Focus to Labor Market
Fed is Forecasting 200 Bps of Cuts by Year-End 2025
“The time has come for policy to adjust. The direction of travel is clear. The timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks.”
Fed Chair Powell (August 23rd, 2024)
Election: Battleground States to Decide the Presidency
A close Presidential Race should be decided only by a small number of battleground states:
Arizona Georgia Michigan Nevada North Carolina Pennsylvania Wisconsin
Election: Democrats Defending More Seats in Senate
This is custom heading element
Despite the many issues on the ballot this November, we believe some of the most important issues for markets revolve around 1) Taxes, 2) Trade and 3) Deficits.
Taxes
Trump: Corporate Tax Rate: Trump aims to keep at 21% or potentially lower. Individual Tax Rate: Trump aims to make permanent current individual tax rates, which sunset in 2025.
Harris: Corporate Tax Rate: Harris aims to raise from 21% to 28% Individual Tax Rate: Partial extension of 2017 tax cuts but potential hikes for high earners (above $400,000/year).
*The 2017 Tax Cuts and Jobs Act is set to expire at the end of 2025.
This is custom heading element
Despite the many issues on the ballot this November, we believe some of the most important issues for markets revolve around 1) Taxes, 2) Trade and 3) Deficits.
Trade
Trump:
Trump aims to increase tariffs not only on China, but for all imported goods. Trump has floated 60% tariffs on Chinese imports and a 10% universal tariff on the rest of world.
Harris:
Harris has pushed against additional tariffs, arguing it results in a “tax” on US consumers. Instead, Harris may pursue the current strategy of aligning US allies against China on trade.
This is custom heading element
Despite the many issues on the ballot this November, we believe some of the most important issues for markets revolve around 1) Taxes, 2) Trade and 3) Deficits.
Deficits
Trump:
Trump plans to “pay” for tax cuts by increasing tariffs on imported goods and China
Harris:
Harris plans to “pay” for fiscal spending by raising taxes on corporations and potentially higher income earners.
US Budget Surplus/Deficit
Investment Implications
5. Chinese Stimulus May Mark a Turning Point:
In late-September, Chinese equities posted their best week since 2008 after the government announced a massive stimulus package (highlighted to the right). As a reminder, China has been stuck in a lengthy downturn due to a property crisis, deflation and weak consumer confidence. In our view, the magnitude of this stimulus is reminiscent of US stimulus provided in March 2020 by the Fed and US government. Ultimately the size of this stimulus and commitment “to do more” may help finally stabilize the Chinese market.
1. Expect an Additional 50 Bps of Cuts by Year-End:
Not only did the Fed cut rates in September for the first time since 2020, but they cut by 50 basis points. The jumbo cut was a signal on the Fed’s intent to not “fall behind the curve.” The September Fed meeting also provided an updated “Dot Plot,” which showed a majority of FOMC members expect an additional 50 basis points of cuts in 2024. With two Fed meetings left in November and December, current market odds agree with the Fed.
2. Equities May Struggle in the Leadup to the Election:
September-November is historically the weakest 3-month stretch for equities in a Presidential Election Year. While the S&P 500 rallied 2.1% in September, a big contributor was the Fed’s jumbo rate cut (50 bps). The Fed’s next meeting is not until after the election and equity valuations are elevated. We also could see added volatility if we do not have a declared winner for days or weeks. On a positive note, US equities historically rally after the Presidential Election into year-end.
Average S&P 500 Performance in Presidential Election Years
(Since 1988)
3. Strong Q1 Returns (+10%) Historically Bullish for Rest of Year
This is just the 10th time since 1970 the S&P 500 had 10+% returns in the first quarter to start a year. In the previous nine occurrences, the S&P 500 had a median return in the third quarter of 1.9%. The S&P 500 was able to surpass this, finishing the third quarter up 5.9%.
In looking at the fourth quarter and full year returns in these years, the S&P 500 had median returns of roughly 8% and 28%, respectively. In fact, none of these years produced a single negative calendar year return.
4. Bond Market Pricing in Too Many Cuts:
We believe there is a disconnect between the bond & equity markets. Equities remain near all-time highs but the bond market is pricing roughly 200 basis points of cuts over the next year (according to the 2-year Treasury yield). We believe bond market pricing is overdone and yields have dropped too far in anticipation of a quicker cutting cycle. The economy remains resilient but inflation may be sticky. As highlighted in our last quarterly outlook, we prefer short-to-intermediate bonds in the fourth quarter.
2-Year Treasury Yield (%)
5. Chinese Stimulus May Mark a Turning Point:
In late-September, Chinese equities posted their best week since 2008 after the government announced a massive stimulus package (highlighted to the right). As a reminder, China has been stuck in a lengthy downturn due to a property crisis, deflation and weak consumer confidence. In our view, the magnitude of this stimulus is reminiscent of US stimulus provided in March 2020 by the Fed and US government. Ultimately the size of this stimulus and commitment “to do more” may help finally stabilize the Chinese market.
Recap of Recently Announced Stimulus in China
Interest rate cuts
Incentives for State-Owned enterprises to acquire unsold property
Equity support, including facilities that provide funding to firms & investors for equity purchases
Reduce level of cash banks must keep in Reserve
Cut outstanding mortgages by 50 bps
Lower the minimum down payment on homes.
Encourage buybacks
Important Disclaimers and Disclosures
Rose Capital Advisors, LLC is registered as an investment adviser with Securities and Exchange Commission (“SEC”). Rose Capital Advisors, LLC only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. The use of the term “registered investment adviser” does not imply a certain level of skill or training. This report is a publication of Dynasty Financial Partners. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change.
Information contained herein does not involve the rendering of personalized investment advice, but is limited to the dissemination of general information. A professional adviser should be consulted before implementing any of the strategies or options presented. *Information is not an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein. Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment, investment strategy (including the investments and/or investment strategies recommended by the adviser), or product made reference to directly or indirectly, will be profitable or equal to past performance levels.
Rose Capital Advisors clients – please contact us at 305.534.7673 if there have been any changes in your financial situation or investment objectives, or if you want to implement reasonable restrictions and/or modify existing restrictions. . As a reminder, all written business related inquiries regarding your accounts and/or investments should be submitted via email for compliance archiving purposes. Therefore, please do not text message any Rose Capital Advisor employee regarding any business related matters. All investment strategies have the potential for profit or loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client’s investment portfolio. Historical performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results. Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark.
Dynasty Financial Partners is a U.S. registered trademark of Dynasty Financial Partners, LLC (“Dynasty”). Dynasty is a brand name, and functions through Dynasty’s wholly owned subsidiary, Dynasty Wealth Management, LLC, (“DWM”) a registered investment adviser with the Securities and Exchange Commission, when providing investment services. Any reference to the terms “registered investment adviser” or “registered” does not imply that Dynasty or any person associated with Dynasty has achieved a certain level of skill or training. A copy of DWM’s current written disclosure statement discussing our advisory services and fees is available for your review upon request.
This message is intended for the exclusive use of members or prospective members considering joining the Dynasty Network of registered investment advisers. It should not be construed as an attempt to sell or solicit any products or services of Dynasty, DWM or any investment strategy, nor should it be construed as legal, accounting, tax or other professional advice. This material is proprietary and may not be reproduced, transferred, modified or distributed in any form without prior written permission from Dynasty. Dynasty reserves the right, at any time and without notice, to amend, or cease publication of the information contained herein. Certain of the information contained herein has been obtained from third-party sources and has not been independently verified. It is made available on an “as is” basis without warranty. Any strategies or investment programs described in this presentation are provided for educational purposes only and are not necessarily indicative of securities offered for sale or private placement offerings available to any investor.
The views expressed in the referenced materials are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance; actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.
Historical performance results for investment indices and/or product benchmarks have been provided for general comparison purposes only, and do not include the charges that might be incurred in an actual portfolio, such as transaction and/or custodial charges, investment management fees, or the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results.
What We Got Right and Wrong in Q3
What we Got Right:
“The Fed Begins Cutting Rates in September”
The Fed cut interest rates in September for the first time since the beginning of the Covid pandemic.
“Expect Softer Economic Data”
We expected a catalyst for the Fed to begin cutting rates in September was weaker economic data, particularly in the labor market.
“Strong Q1 Returns Historically Bullish for Rest of Year”
The S&P 500 rose 10+% in the first quarter for just the 10th time since 1970. In the previous nine years, the S&P 500 had a median full-year return of 28.6%.
“Short/Intermediate Bonds > Cash Before Fed Cuts”
With a Fed cut expected, we recommended investors allocate to Bonds over Cash. The Bloomberg US Agg rallied +5.2% in the third quarter and outperformed Cash.
“Yield Curve (10s and 2s) Disinverts”
The longest inverted yield curve on record for the 10-year and 2-year finally ended. This part of the yield curve had been inverted since July 2022.
S&P 500: Best Start to a Year Since 1997
US stocks are off to their best start to a year since 1997. US equities are on a five-month winning streak, in part to a broadening of the market and the Fed cutting interest rates for the first time since 2020. In looking forward, the market is entering a seasonally strong period but will have to contend with volatility around the US Election.
Bull Market has been Led by Mega-Caps
US stock performance has historically been strong in Presidential Election years. In fact, the stock market has only experienced two negative calendar years in a Presidential Election year, dating back to 1948. Those two negative years were in 2000 when the Tech Bubble burst and in 2008 during the Global Financial Crisis.
Recap of Third Quarter 2024: Change of Leadership
After a “soft” CPI print on July 11th, markets rotated out of Big Tech into more defensive oriented stocks with attractive valuations
Recap of Third Quarter 2024: What Changed?
Market (and Fed) Shifting Focus to Labor Market
Fed is Forecasting 200 Bps of Cuts by Year-End 2025
“The time has come for policy to adjust. The direction of travel is clear. The timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks.”
Fed Chair Powell (August 23rd, 2024)
Election: Battleground States to Decide the Presidency
A close Presidential Race should be decided only by a small number of battleground states:
Arizona
Georgia
Michigan
Nevada
North Carolina
Pennsylvania
Wisconsin
Election: Democrats Defending More Seats in Senate
This is custom heading element
Despite the many issues on the ballot this November, we believe some of the most important issues for markets revolve around 1) Taxes, 2) Trade and 3) Deficits.
Taxes
Trump:
Corporate Tax Rate: Trump aims to keep at 21% or potentially lower.
Individual Tax Rate: Trump aims to make permanent current individual tax rates, which sunset in 2025.
Harris:
Corporate Tax Rate: Harris aims to raise from 21% to 28%
Individual Tax Rate: Partial extension of 2017 tax cuts but potential hikes for high earners (above $400,000/year).
*The 2017 Tax Cuts and Jobs Act is set to expire at the end of 2025.
This is custom heading element
Despite the many issues on the ballot this November, we believe some of the most important issues for markets revolve around 1) Taxes, 2) Trade and 3) Deficits.
Trade
Trump:
Trump aims to increase tariffs not only on China, but for all imported goods. Trump has floated 60% tariffs on Chinese imports and a 10% universal tariff on the rest of world.
Harris:
Harris has pushed against additional tariffs, arguing it results in a “tax” on US consumers. Instead, Harris may pursue the current strategy of aligning US allies against China on trade.
This is custom heading element
Despite the many issues on the ballot this November, we believe some of the most important issues for markets revolve around 1) Taxes, 2) Trade and 3) Deficits.
Deficits
Trump:
Trump plans to “pay” for tax cuts by increasing tariffs on imported goods and China
Harris:
Harris plans to “pay” for fiscal spending by raising taxes on corporations and potentially higher income earners.
US Budget Surplus/Deficit
Investment Implications
5. Chinese Stimulus May Mark a Turning Point:
In late-September, Chinese equities posted their best week since 2008 after the government announced a massive stimulus package (highlighted to the right). As a reminder, China has been stuck in a lengthy downturn due to a property crisis, deflation and weak consumer confidence. In our view, the magnitude of this stimulus is reminiscent of US stimulus provided in March 2020 by the Fed and US government. Ultimately the size of this stimulus and commitment “to do more” may help finally stabilize the Chinese market.
1. Expect an Additional 50 Bps of Cuts by Year-End:
Not only did the Fed cut rates in September for the first time since 2020, but they cut by 50 basis points. The jumbo cut was a signal on the Fed’s intent to not “fall behind the curve.” The September Fed meeting also provided an updated “Dot Plot,” which showed a majority of FOMC members expect an additional 50 basis points of cuts in 2024. With two Fed meetings left in November and December, current market odds agree with the Fed.
Fed Funds Rate Probabilities by Year-End
(Current Level: 4.75% – 5.00%)
2. Equities May Struggle in the Leadup to the Election:
September-November is historically the weakest 3-month stretch for equities in a Presidential Election Year. While the S&P 500 rallied 2.1% in September, a big contributor was the Fed’s jumbo rate cut (50 bps). The Fed’s next meeting is not until after the election and equity valuations are elevated. We also could see added volatility if we do not have a declared winner for days or weeks. On a positive note, US equities historically rally after the Presidential Election into year-end.
Average S&P 500 Performance in Presidential Election Years
(Since 1988)
3. Strong Q1 Returns (+10%) Historically Bullish for Rest of Year
This is just the 10th time since 1970 the S&P 500 had 10+% returns in the first quarter to start a year. In the previous nine occurrences, the S&P 500 had a median return in the third quarter of 1.9%. The S&P 500 was able to surpass this, finishing the third quarter up 5.9%.
In looking at the fourth quarter and full year returns in these years, the S&P 500 had median returns of roughly 8% and 28%, respectively. In fact, none of these years produced a single negative calendar year return.
4. Bond Market Pricing in Too Many Cuts:
We believe there is a disconnect between the bond & equity markets. Equities remain near all-time highs but the bond market is pricing roughly 200 basis points of cuts over the next year (according to the 2-year Treasury yield). We believe bond market pricing is overdone and yields have dropped too far in anticipation of a quicker cutting cycle. The economy remains resilient but inflation may be sticky. As highlighted in our last quarterly outlook, we prefer short-to-intermediate bonds in the fourth quarter.
2-Year Treasury Yield (%)
5. Chinese Stimulus May Mark a Turning Point:
In late-September, Chinese equities posted their best week since 2008 after the government announced a massive stimulus package (highlighted to the right). As a reminder, China has been stuck in a lengthy downturn due to a property crisis, deflation and weak consumer confidence. In our view, the magnitude of this stimulus is reminiscent of US stimulus provided in March 2020 by the Fed and US government. Ultimately the size of this stimulus and commitment “to do more” may help finally stabilize the Chinese market.
Recap of Recently Announced Stimulus in China
Important Disclaimers and Disclosures
Rose Capital Advisors, LLC is registered as an investment adviser with Securities and Exchange Commission (“SEC”). Rose Capital Advisors, LLC only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. The use of the term “registered investment adviser” does not imply a certain level of skill or training. This report is a publication of Dynasty Financial Partners. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change.
Information contained herein does not involve the rendering of personalized investment advice, but is limited to the dissemination of general information. A professional adviser should be consulted before implementing any of the strategies or options presented. *Information is not an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein. Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment, investment strategy (including the investments and/or investment strategies recommended by the adviser), or product made reference to directly or indirectly, will be profitable or equal to past performance levels.
Rose Capital Advisors clients – please contact us at 305.534.7673 if there have been any changes in your financial situation or investment objectives, or if you want to implement reasonable restrictions and/or modify existing restrictions. . As a reminder, all written business related inquiries regarding your accounts and/or investments should be submitted via email for compliance archiving purposes. Therefore, please do not text message any Rose Capital Advisor employee regarding any business related matters. All investment strategies have the potential for profit or loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client’s investment portfolio. Historical performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results. Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark.
Dynasty Financial Partners is a U.S. registered trademark of Dynasty Financial Partners, LLC (“Dynasty”). Dynasty is a brand name, and functions through Dynasty’s wholly owned subsidiary, Dynasty Wealth Management, LLC, (“DWM”) a registered investment adviser with the Securities and Exchange Commission, when providing investment services. Any reference to the terms “registered investment adviser” or “registered” does not imply that Dynasty or any person associated with Dynasty has achieved a certain level of skill or training. A copy of DWM’s current written disclosure statement discussing our advisory services and fees is available for your review upon request.
This message is intended for the exclusive use of members or prospective members considering joining the Dynasty Network of registered investment advisers. It should not be construed as an attempt to sell or solicit any products or services of Dynasty, DWM or any investment strategy, nor should it be construed as legal, accounting, tax or other professional advice. This material is proprietary and may not be reproduced, transferred, modified or distributed in any form without prior written permission from Dynasty. Dynasty reserves the right, at any time and without notice, to amend, or cease publication of the information contained herein. Certain of the information contained herein has been obtained from third-party sources and has not been independently verified. It is made available on an “as is” basis without warranty. Any strategies or investment programs described in this presentation are provided for educational purposes only and are not necessarily indicative of securities offered for sale or private placement offerings available to any investor.
The views expressed in the referenced materials are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance; actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.
Historical performance results for investment indices and/or product benchmarks have been provided for general comparison purposes only, and do not include the charges that might be incurred in an actual portfolio, such as transaction and/or custodial charges, investment management fees, or the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results.
“Recent Divergence in Magnificent 7 will Continue” Entering 2024 we expected divergence in Big Tech...
What we Got Right: “Valuations Remain Attractive for US Equities” Valuations remained attractive for small...
During the weeks following this year’s summer solstice (occurring in 2022 on June 21st, at 5:14...
Michael has been providing strategic investment advice and wealth management services for over 24 years.
View Full BioAs a Financial Advisor, Ashley works closely with high net worth individuals and families with a niche focus on female executives and entrepreneurs.
View Full Bio