Our Thoughts on THIRD Quarter 2024

Matt Johnson, CFA® - Andy Nugent, CFA®

Market Recap, Portfolio Analysis, and Review

The third quarter of 2024 was anything but dull in the world of economics and markets. The U.S. stock market kept its momentum, building on a strong first half of the year, while inflation continued to ease, allowing the Federal Reserve to cautiously trim interest rates. Let's break it down.

Inflation

In September, inflation remained relatively subdued, with the Consumer Price Index (CPI) increasing by 0.2% for the month, keeping the year-over-year rise at 2.4%. This marks the slowest annual increase since early 2021, reflecting steady progress in cooling inflation. However, food prices, especially for groceries, surged by 0.4% in September, driven in part by disruptions like the bird flu outbreak, which led to a sharp increase in egg prices by nearly 9% just for the month.

Core CPI, which strips out volatile food and energy prices, increased by 0.3% in September and by 3.3% year-over-year. This marks a slight acceleration from the prior month’s annual rate of 3.2%, highlighting that inflationary pressures are still evident in some sectors, such as insurance, medical care, and airfares, despite overall improvements.

Interest Rates

After keeping interest rates high for an extended period to battle inflation, the Federal Reserve finally cut the federal funds rate by 0.5% in September, bringing it down to a range of 4.75% to 5%. This was the first rate cut since the pandemic-induced turmoil of 2020.

With inflation easing and the economy showing signs of slowing down—without tipping into recession—the Fed is attempting a “soft landing” by avoiding drastic rate cuts. However, concerns about wage pressures and a resilient labor market mean the Fed is treading carefully.

Home mortgage rates made a nice move lower ending the quarter at 6.22% for a 30-year fixed rate mortgage, per Bankrate. That is down from 7% a quarter ago

Sector Analysis

The S&P 500 was up over 5% in the quarter. Mega-cap tech took a breather and was up just a percent. With interest rates moving lower, Utilities and Real Estate led the charge advancing more than 18% and 16%, respectively. All sectors gained in the quarter apart from Energy which was down over 3%. It is nice to see a little more balance in the market with many sectors participating in the rally.

We made four trades in the quarter, but only in two sectors.

Industrials – After parring back last quarter, we sold out of General Dynamics as the stock price exceeded our estimate of its true worth. We purchased Union Pacific, the railroad and freight transportation services company. It has solid fundamentals with revenue and earnings expected to continue to grow over the next few years.

Consumer Staples – We once again increased our weighting to this sector. We added to our position in Molson Coors and purchased Archer-Daniels-Midland. ADM, as it is known, is an agriculture company that is trading at low multiples to earnings and pays a dividend north of 3%.

Summary

With the 2024 presidential election on the horizon, market volatility could pick up. Historically, elections tend to bring some uncertainty, as investors weigh potential policy changes. However, studies show that, eventually, the stock market tends to rise regardless of who wins. The key is maintaining a long-term investment strategy rather than trying to time political events.

As we head into Q4 2024, the combination of easing inflation, cautious Fed action, and political uncertainty will continue to shape the economic landscape. Staying focused on long-term fundamentals, rather than short-term noise, remains a wise approach for investors.

Matt Johnson, CFA® Andy Nugent, CFA®

Sage Capital Advisors, LLC is a Securities and Exchange Registered Investment Advisor. Sage Capital Advisors is headquartered in Sioux Falls, South Dakota. Advisory services are only offered to clients or prospective clients where representatives of Sage Capital Advisors are properly licensed or exempt from licensure. This market commentary is solely for informational purposes and should not be construed as investment advice, it is only intended to provide education about the financial industry. Historical performance results for investment indices and/or categories have been provided for general comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of investment management fees, or the impact of taxes, all of which would have the effect of decreasing historical performance results. Indices are unmanaged and cannot be invested in directly. It should not be assumed that your account holdings correspond directly to any comparative indices. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered unless a client service agreement is in place.