Tariffs, shrinking profit margins, stretched valuations, a tight labour market, and concerns over Fed independence gave investors plenty to worry about in Q3. Yet despite — or perhaps because of — these fears, most of which failed to materialize, the stock market delivered some of its strongest returns in years. The S&P 500 climbed 7.8% in the third quarter, its best Q3 since 2020. Even September, historically the weakest month of the year, surprised with a 3.3% rally – its best September since 2010.

2024 was a year of remarkable returns across most asset classes, treating investors to a performance well above long-term norms. Gains were widespread, and while a few pockets of losses existed—such as in long-term Treasuries, the Materials sector, and select emerging markets like Brazil and South Korea—these were the exceptions rather than the rule.

The unusual leadership ranking of asset classes, whether due to the election year or a pivotal moment in Federal Reserve monetary policy, remains perplexing. The Fed’s decision to cut rates by 50 basis points, despite solid economic data, disrupted normal correlations between benchmarks. Gold emerged as the top performer, while Commodities (S&P GSCI) suffered the most. In equities, the DJIA, despite being price-weighted, generally mirrors the S&P 500’s performance. However, the S&P 500 has outpaced the DJIA by 8.5% year-to-date, largely due to non-DJIA members like Nvidia.

It is highly misleading looking at equity returns in Q2 and year-to-date to conclude the investment environment was an easy ride. Indeed, market-cap weighted equity indices outperformed other asset classes in Q2.

The strong momentum from the last two months of 2023 carried into 2024. The S&P 500 rose 10.2% in Q1, the best start to the year since 2019 and the 14th-best since 1926. Gains were broad-based, with all seven major MSCI country/region indices, all nine Russell style boxes, and 10 out of 11 S&P 500 sectors ending the quarter ahead of where they started.