Q3 2024: Strong performance, lingering questions

Global markets performed well in the third quarter of 2024, continuing their positive trend this year. This was influenced by factors such as strong corporate profits, lower inflation, and interest rate cuts by central banks worldwide.

The S&P 500 Index, S&P/TSX Composite Index, and MSCI World Index increased by 20.8% (USD), 14.5%, and 17.5% (USD), respectively, in the first nine months of the year.* Bonds also performed well. Canadian and U.S. bonds, as measured by the FTSE Canada Universe Bond Index and Bloomberg US Aggregate Bond Index, rose by 4.3% and 4.7% (USD), respectively, over the same period.** This was driven by slower global growth and interest rate declines.

Despite some market ups and downs, both stock and bond investors have seen good returns this year. However, many questions lie ahead.

What will economic slowdowns look like globally?

Are some economies more vulnerable than others? The global economy, including the U.S. and Canada, may not be as stable as it seems. A mild recession is expected both here and in the U.S.

Is now the time to shift from tech-heavy mega caps to small caps?

Nearly 40% of U.S. small-cap companies have reported recent losses or declining profits over the past 12 months.^‡ In a slowing economy, with uneven earnings growth and high valuations, it’s wise to focus on high-quality companies and portfolio diversification.

After a strong 3-month stretch for bond returns, how much growth potential is left?

Patience and a sound fixed-income strategy are essential to endure over time. Central banks are starting to lower interest rates, which will likely help bond portfolios. Flexibility is key in today’s highly volatile fixed-income markets. The strongest portfolios will be those that can adapt and capitalize on emerging opportunities.

Who will drive near-term returns: the U.S. presidential election winner or the Federal Reserve chair?

Market volatility often surprises and can happen when investors feel most secure. Recession risks, Federal Reserve actions, the U.S. election, and general market sentiment could all cause further volatility. We believe investors should stay calm and wait for the right moment to act on opportunities, rather than letting fear drive their decisions.

Navigating a noisy autumn

Despite potential short-term challenges, the outlook remains favourable for longer-term investors. Over the coming year, global central banks are expected to continue cutting interest rates, creating a supportive environment for both stocks and bonds. Maintaining a balanced and diversified portfolio is central to managing the months ahead.

*Source: Bloomberg. As at September 30, 2024.
**Source: Bloomberg. As at September 30, 2024.
‡Source: Bloomberg.