MARKET OVERVIEW
The third quarter proved to be anything but quiet as we experienced notable movements in the equity and fixed income markets and a renewed focus on the Fed.
Equity markets posted their largest drawdown (definition: measure of the total reduction in value from the markets peak to its trough) for the year in early August. This drawdown was driven by several factors, including the Bank of Japan’s decision to raise interest rates, which triggered an unwinding of the Yen carry trade and heightened concerns that the Federal Reserve might be too slow in cutting rates. Despite these challenges, the market demonstrated remarkable resilience, recovering most of its losses by late August.
The standout event for markets in Q3 was the Federal Reserve's initiation of a new easing cycle, marked by a 0.50% rate cut during the September Federal Open Market Committee meeting. The Fed’s dot plot, which outlines officials’ projections for future interest rates, indicated a target range of 4.25% to 4.5% by year-end, with expectations for a range of 3.25% to 3.5% in 2025.3 This suggests an additional 0.25% to 0.50% in cuts through the end of the year. The Fed also appeared to pivot from its previous focus on reducing inflation to placing an increasing emphasis on fulfilling its mandate to maintain full employment.
We observed a notable rotation in market leadership, shifting from large-cap tech to small-cap and value-oriented equities.4 U.S. Treasuries yields moved notable lower with the 10-year yield ending September at 3.77%.1 Municipal bonds posted their best quarter since 2011, with the index returning approximately 2.6% for the period.5
Looking ahead to Q4, financial markets will navigate several key events, including the U.S. presidential election, escalating geopolitical tensions in the Middle East, and ongoing scrutiny of the Federal Reserve’s rhetoric and rate action.
Among the potential volatility-inducing moments in Q4 is one that has been anticipated all year: the Presidential election. While historical data suggests that the winning candidate or party has a minimal long-term impact on market returns, it is noteworthy that markets often react strongly—either positively or negatively—to election outcomes.
BlackRock looked at market performance in the first month after a Presidential election and then the 11 months following to see if the initial reaction to the result held in the following year. In five of seven elections since 1996, they found that the markets initial reaction was not indicative of the year ahead.6 In summary, we can expect volatility following the election but it’s typically temporary. I’ll be sending out a full analysis of the upcoming election later this month.
Also likely to influence market sentiment in Q4 is the Federal Reserve’s rhetoric and rate cuts. Historically, equity markets generally perform well on Fed easing, particularly when rate cuts are not accompanied by a recession.6
PLANNING AHEAD
The final months of the year are a busy time for financial planning. Below are some key reminders to keep in mind:
- Tax Loss Harvesting – We will continue to review portfolios for tax loss harvesting opportunities through year-end. Our taxable money managers are also actively seeking out potential opportunities.
- Required Minimum Distributions – If you’re over 73 years old and haven’t done so yet, make sure to take your required minimum distributions from your retirement accounts to avoid penalties.
- Maximize Retirement Savings Contributions – Fully fund your retirement accounts to take full advantage of tax-deferral benefits. High-income earners should consider back-door Roth contributions or mega-back-door Roth contributions, if available. This is also a great time to evaluate the benefits of converting your traditional IRA to a Roth IRA.
- Annual Gifting – If you’re incorporating annual gifting into your estate strategy, be sure to make your gifts by year-end. The 2024 annual gift limit is set at $18,000 per person or $36,000 for married couples.6
- Charitable / 529 Plan Contributions – Ensure any contributions are made by year-end if you want to claim them for the 2024 tax year.
I will be reaching out to clients throughout the month to discuss these items and other year-end considerations specific to your financial plan and investment strategy. I am also excited to begin onboarding clients to our new financial planning platform which I believe will deliver best-in-class analysis and modeling. This fully interactive platform allows clients to customize scenarios and explore various financial strategies in real time.
FINANCIAL INSIGHTS
Individuals subject to required minimum distributions (RMDs) and who are charitably inclined should consider utilizing a Qualified Charitable Distribution (QCD) to potentially lower their taxable income.
A QCD is a direct transfer of funds from your IRA to a qualified charity. When you make a QCD, the distribution is excluded from your taxable income. This can help keep your taxable income lower for the year and potentially prevent you from being pushed into a higher tax bracket.
Additionally, QCDs offer a valuable opportunity for individuals or couples who do not itemize their taxes to still benefit from a charitable contribution.
If you’d like to learn more about how Qualified Charitable Distributions can apply to your individual situation, please feel free to reach out!
-Adam
If you would like to be added to our distribution list, please send a request to: info@runyanwm.com
All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. All economic and performance data is historical and not indicative of future results. All views/opinions expressed in this newsletter are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC.
529 Plan, or "qualified tuition plan," is an investment account that provides tax benefits when the savings are used for qualified education expenses. Withdrawals from a 529 plan account can be taken at any time, for any reason. But, if the money is not used for qualified education expenses, you will incur a 10% penalty and owe taxes on any investment gains.
Standard & Poor’s 500(S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. Indexes are unmanaged and do not incur management fees, costs, or expenses. It is not possible to invest directly in an index.
Dow Jones Industrial Average (DJIA) is a price-weighted index of 30 actively traded blue chip stocks. Indexes are unmanaged and do not incur management fees, costs or expenses. It is not possible to invest directly in an index.
Nasdaq is a global electronic marketplace for buying and selling securities. Originally an acronym for "National Association of Securities Dealers Automated Quotations"—it was a subsidiary of the National Association of Securities Dealers (NASD), now known as the Financial Industry Regulatory Authority (FINRA). Indexes are unmanaged and do not incur management fees, costs, or expenses. It is not possible to invest directly in an index.
3 Federal Reserve, Summary of Economic Projections, September 2024 4 Morningstar, Q3 in Review and Q4 2024 Market Outlook5 Alliance Berstein, The Week in Muniland, September 30, 2024 6 BlackRock, Taking Stock: Q4 2024 Equity Market Outlook