THIRD QUARTER 2024 MARKET REVIEW: THE RALLY BROADENS OUT

Summary

• macrocast™ remains positive and continues to suggest the risk of a recessionary bear market in 2024 is low. Our microcast™ signal was recently upgraded from recommending a neutral allocation to an aggressive allocation..

• The macrocast™ score has risen to levels typically seen during bull markets, driven by improving economic growth and broader stock market participation. High valuations continue to act as a headwind, though these indicators alone do not signal an imminent downturn.

• In Q3, most asset classes, including stocks and bonds, saw strong gains, driven by expectations of lower interest rates and diminishing recession risks. Notable trends included a rebound in small-cap stocks, a boost for international markets due to a weaker dollar, and the best quarter for bonds this year. Meanwhile, commodities lagged due to declining oil prices.

• Historical data indicates that, despite the upcoming election and potential shifts in congressional power, the stock market generally performs well under a variety of political scenarios. This underscores the idea that markets are primarily driven by economic fundamentals and monetary policy, rather than political outcomes. The election may create noise, but the long-term drivers remain the same.

THE MESSAGE FROM macrocast™: IMPROVED ECONOMIC GROWTH AND BROADER PARTICIPATION

---

As a reminder, macrocast™ is Corbett Road’s proprietary investment model. macrocast™ measures the appeal of risk assets by looking at the VITALS of the market—Valuation, Inflation, Technical Analysis, Aggregate Economy, Liquidity, and Sentiment. By looking at multiple factors, we seek to better gauge market conditions and the probability of a sustained, recessionary market decline.

The current macrocast™ score has climbed to levels commonly associated with bull markets, driven primarily by stronger market breadth and improving consumer spending.

Our valuation indicators continue to be the biggest drag on the score. However, as we’ve highlighted before, high valuations don’t necessarily signal an imminent market decline, as valuation alone is not a reliable short-term market signal.

A higher macrocast™ score typically bodes well for risk assets. In the near-term, we expect inflation will continue to be manageable while economic growth remains strong. As we continue to monitor incoming data, we will adjust our tactical strategies based on the signals from both macrocast™ and microcast™, ensuring our positioning aligns with evolving market conditions.

THIRD QUARTER ASSET CLASS REVIEW

---

The following table highlights major asset class returns from the third quarter of the year (from Charles Schwab):

Some additional insights from the table:

1. In Q3, every major asset class saw gains, except for commodities. Stock and bond markets delivered broad-based returns across different regions and company sizes. The sole exception was commodities, which declined due to falling oil prices—a drop that, while hurting that sector, benefited U.S. consumers by easing energy costs.

2. Small-cap stocks, after a rough start to the year, bounced back with a nearly 10% gain. This surge was driven by growing expectations of lower interest rates and diminished recession risks. Smaller companies are especially sensitive to these shifts because they tend to have more cyclical business models and higher levels of floating-rate debt, making them more reactive to changes in economic conditions and borrowing costs.

3. International stocks also performed well, with both developed and emerging markets surging. A weaker dollar boosted returns, and China’s late-Q3 stimulus added support, especially for emerging markets where China represents nearly a third of the index.

4. Bonds enjoyed their strongest quarter of the year, with the aggregate bond index gaining over 5%. Falling interest rates, as investors anticipated future Fed rate cuts, drove bond prices higher, delivering solid returns.

THE PRESIDENTIAL ELECTION IS NEAR: FOCUS ON LONG-TERM MARKET DRIVERS

---

The presidential election is just three weeks away, and polls and betting markets suggest a close race. While the spotlight is on this immediate outcome, when it comes to investing, it’s often more productive to zoom out and consider the bigger picture. Political cycles—whether 4 or 8 years—tend to be short-term relative to the longer time horizons most investors are working with. Keeping this broader perspective helps in navigating market uncertainties without overreacting to election-driven noise.

The following table serves as a valuable reminder that, historically, stocks have performed well regardless of which party holds the presidency. While political outcomes can create short-term volatility, long-term market trends tend to be driven by broader economic factors (from RBA):

Regarding the composition of Congress after this election cycle, the most likely scenarios are either a Republican sweep or a Democrat in the White House and a GOP/Split Congress. When considering the impact of congressional makeup on the markets, historically, split Congresses have seen better stock market returns. This could be coincidental or perhaps due to the gridlock that often results when different parties control the presidency and Congress, limiting major policy shifts. However, regardless of the makeup, stock market returns have typically been positive (from Carson Group):

The key takeaway from these studies is that, historically, stocks have risen over the long term, despite occasional downturns. This upward trend has persisted regardless of which political party holds power, and there’s little reason to think the upcoming election will change that. Long-term market performance is primarily driven by fundamentals—economic growth, corporate earnings, and sound monetary policy—not by politics.

In summary, the macrocast™ outlook has strengthened, and microcast™ was recently upgraded to an aggressive allocation after being neutral for the past few months. Asset class performance broadened in Q3, with both risk assets and fixed income delivering strong returns. As the election approaches in three weeks, historical data suggests that the results are unlikely to cause significant shifts in long-term market performance, which is the most critical time horizon for most investors.

---

Important Disclosures

The chart(s)/graph(s) shown is(are) for informational purposes only and should not be considered as an offer to buy, solicitation to sell, or recommendation to engage in any transaction or strategy. Past performance may not be indicative of future results. While the sources of information, including any forward-looking statements and estimates, included in this (these) chart(s)/graph(s) was deemed reliable, Corbett Road Wealth Management (CRWM), Spire Wealth Management LLC, Spire Securities LLC and its affiliates do not guarantee its accuracy.

The views and opinions expressed in this article are those of the authors as of the date of this publication, are subject to change without notice, and do not necessarily reflect the opinions of Spire Wealth Management LLC, Spire Securities LLC or its affiliates.

All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. macrocast™ and microcast™ are proprietary indexes used by Corbett Road Wealth Management to help assist in the investment decision-making process. Neither the information provided by macrocast™ or microcast™ nor any opinion expressed herein considers any investor’s individual circumstances nor should it be treated as personalized advice. Individual investors should consult with a financial professional before engaging in any transaction or strategy. The phrase “the market” refers to the S&P 500 Total Return Index unless otherwise stated. The phrase “risk assets” refers to equities, REITs, high yield bonds, and other high volatility securities.

Use of Indicators

Corbett Road’s quantitative models utilize a variety of factors to analyze trends in economic conditions and the stock market to determine asset and sector allocations that help us gauge market movements in the short- and intermediate term. There is no guarantee that these models or any of the factors used by these models will result in favorable performance returns.

Individual stocks are shown to illustrate market trends and are not included as securities owned by CRWM. Any names held by CRWM is coincidental. To be considered for investment by CRWM, a security must pass the Firm’s fundamental review process, meet certain internal guidelines, and fit within the parameters of the Firm’s quantitative models.

Spire Wealth Management, LLC is a Federally Registered Investment Advisory Firm. Securities offered through an affiliated company, Spire Securities, LLC, a Registered Broker/Dealer and member FINRA/SIPC. Registration does not imply any level of skill or training.