11/3/24

Weekly Market Recap

Last week was slightly negative for U.S. stocks. The S&P 500 ended the week down 1.57%. Most international stock markets also ended the week slightly lower. Bonds also had a negative week due to the rise in the 10-year yield. Inflation, as measured by the PCE (Personal Consumption Expenditure), fell to 2.1% year-over-year for September. This is good news for potential rate cuts, as the PCE is the Federal Reserve’s preferred measure of inflation and now sits just 0.10% above their 2% target. This will likely encourage the Fed to continue cutting rates and shift from a contractionary monetary policy to a neutral stance. Another factor that might prompt the Fed to cut rates further was the very weak jobs report released last Friday. Only 12,000 jobs were added in October, compared to 223,000 in September. However, some blame the weak report on hurricanes and a major strike at Boeing. It's very likely that the strike and the hurricanes are distorting the data, making things appear worse than they actually are. Nevertheless, the labor market could continue to weaken moving forward, and if this happens, the Fed would likely accelerate the pace of rate cuts.

Chart of the Week

The chart of the week is one of my all-time favorites. It shows the year-end returns for various asset classes, ranked with the best performer on top and the worst performer on the bottom. Everyone wants to pick the best-performing asset class, but in reality, that is a very difficult game to play. For example, notice that commodities were the best-performing asset class in 2022. During that time, investors poured into commodities, as they were the only asset class that did well. However, in 2023, they became the worst-performing asset class. Notice the white boxes labeled "asset alloc." This shows what a diversified portfolio would have achieved. With a diversified portfolio, you will never be the best performer, but you will also never be the worst. Over time, this strategy can deliver solid returns for investors with a reasonable amount of volatility. The bottom line: don’t try to time asset classes; instead, own a diversified portfolio that aligns with your risk tolerance.

Source:Bloomberg, FactSet, MSCI, NAREIT, Russell, Standard & Poor’s, J.P. MorganAsset Management.

Large cap: S&P 500, Small cap: Russell 2000, EM Equity: MSCI EME,DM Equity: MSCI EAFE, Comdty: Bloomberg Commodity Index, High Yield: Bloomberg Global HY Index,Fixed Income: Bloomberg US Aggregate, REITs: NAREIT Equity REIT Index, Cash:Bloomberg 1-3m Treasury. The “Asset Allocation” portfolio assumes the followingweights: 25% in the S&P 500, 10% in the Russell 2000, 15% in the MSCI EAFE,5% in the MSCI EME, 25% in the Bloomberg US Aggregate, 5% in the Bloomberg 1-3mTreasury, 5% in the Bloomberg Global High Yield Index, 5% in the BloombergCommodity Index and 5% in the NAREIT Equity REIT Index. Balanced portfolioassumes annual rebalancing. Annualized (Ann.) return and volatility (Vol.)represents period from 12/31/2008 to 12/31/2023. Please see disclosure page atend for index definitions. All data represents total return for stated period.The “Asset Allocation” portfolio is for illustrative purposes only. Pastperformance is not indicative of future returns.

Guide to the Markets – U.S. Data are as of October 31, 2024.

Written by:

Ben Rones, CFA®

Senior Analyst at R&R Financial