It continues to be our view that solid business fundamentals remain in place. Q2’s final GDP growth was reported above expectations at 3.0% and businesses across sectors continue to see growth for the balance of 2024 with expectations for earnings growth to move higher in 2025. Equity market returns began to reflect this economic broadening in Q3 with renewed strength from industries outside of (just) technology helping drive the S&P500 up by almost 6% for the quarter.
Despite some economic trends seemingly slowing in Q3, most notably lower monthly jobs growth numbers, many other trends continued to forge ahead. Both personal and corporate spending continued to show decent growth, wage growth remained above inflation, and growth for the largest segment of the economy, services, remained solid and even accelerated in Sept.
In an important shift, the Federal Reserve adjusted their policy focus from fighting inflation to supporting the jobs market by lowering interest rates by 50bps. Subsequently and surprisingly, the jobs numbers for September were reported much stronger than expected and the prior months’ jobs data was also revised up. Overall, these recent economic trends are favorable for the business environment going forward and significantly reduce the odds of a potential recession.
Market volatilities during the quarter were driven by several extraordinary events. Just two months ago, the Democrats switched their 2024 Presidential nominee to Kamala Harris causing a shift in the election calculus for investors. At the beginning of August, the Japanese “Carry Trade” imploded and drove global markets down more than 5% (some down more than 10%) over the course of a few days. Illiquidity resulted in a short-term selloff that, at least in the US, took about two weeks to return to prior levels. Having struggled economically since Covid, China launched a new stimulus package in mid-September including subsidies and lower interest rates that has propelled their stock market by almost 25% in a few weeks’ time. This impressive market reaction bodes well for real underlying economic growth that should support global growth. Finally, the Israeli Middle East escalation is a huge wildcard. As of this writing, investors are not discounting a material impact on equities or oil, although the oil price has risen. And, of course, the Ukraine war unfortunately continues, but without much effect on current markets.
Barring a significant disruption coming from the Middle East or Ukraine, we believe our portfolio of companies remains well positioned to continue to provide solid shareholder returns for our clients over the next several years. Given their strong balance sheets, high levels of free cash flow and strong management teams, our client holdings are positioned to benefit from some very positive market attributes including: rising earnings in a declining rate environment; a broadening of equity appreciation across industries; the application of artificial intelligence to improve products, services and efficiencies across the economy; investment in infrastructure and power, business onshoring, and domestic semiconductor manufacturing. We expect this confluence of economic drivers to support growth for years to come.
Our thoughts and prayers go out to all affected by the devastating hurricanes in the Southeast.
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SFE Investment Counsel is a Registered Investment Adviser. This presentation is solely for informational purposes and not a solicitation to invest. The results reflect the
deduction of fees and the reinvestment of dividends and other earnings. Advisory services are only offered to clients or prospective clients where SFE and its representatives
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be rendered by SFE unless a client service agreement is in place. Please contact a financial advisory professional before making any investment.
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