Q3 2024 – Market Update

By Contessa Archuleta on November 7, 2024

Election Year – Kyle Burns

It is a strange time to be writing an update. By the time this letter reaches its readers, Election Day will have passed and it is likely the next President of the United States will have been chosen. The uncertainty of an election can cause anxiety for many of us and this year’s narrow margins may kick that stress into a higher gear. Much like this year’s election, finance is based on uncertainty and the management of the risks of the unknown.

This year we have spent many hours discussing the election and managing the impacts of the various potential outcomes. Data points in an election year are numerous and almost any story can be told by picking the data that suits your argument. Here are some good examples of data that we can look at to shape our conversations ii election years and the outcomes from results[1]:

Since 1945, the S&P 500 has risen in the seven months leading up to election day 70 percent of the time.
On average, the Dow Jones Industrial Average (DJIA) has risen 7.6 percent per year when one party has had full control of the executive and legislative branches. When split, the annualized gain has been only 4.6 percent.
During the administration of Democratic Presidents, the DJIA has returned 8.4 percent more when compared to the administration of Republican Presidents.
Small business confidence is 4.6 percent higher, and the record high reading was reached under Republican Presidents.

The comment we have often heard from our friends and clients is, “but this year/election is different.” We try our best not minimize the feeling of the election being different or more important this time. Each election cycle brings its own nuance and the worries over the results have come in loud from our clients on both sides of the aisle. While the uncertainty is real, the markets have pushed forward with a focus on economic data rather than a focus on the political outcome. We can measure some of the market volatility by looking at single day stock market moves of +/-2%. So far in 2024, the S&P 500 has only had 4 such days. This is the lowest measure in an election since 2008; a year that was part of the “Great Recession”[2].

From the financial perspective only, an election can be viewed as another data point. Our business is focused on transitions and the changing of an administration or body of government is another point in time where we look to manage portfolio risk and support clients in achieving their goals. Typically, we are focused on life’s financial transitions. An election can also feel like a major change, and we encourage everyone to reexamine their personal and investment goals as you take in the excitement or stress after the election. Our team remains available for conversations as you examine those goals.

The Markets – Chris Kelly

At long last, the Federal Reserve (“FED”) is cutting rates, but before discussing key events, let us review third quarter and year-to-date performance.

The S&P 500 has had its best three-quarter stretch in 27 years and is up 22.1% year-to-date, with a 5.9% gain for the quarter. The “Magnificent 7” contributed 45% of this year-to-date return, but only 9% of this quarter’s performance, signaling a broadening of the market.[3]^,[4] Utilities, real estate and industrials led third quarter gains, while energy was the only negative sector.[5] The Russell 2000, representing smaller US companies, is up 11.2% year-to-date and gained 9.3% in Q3, outpacing the S&P 500 for the quarter; these companies will benefit from rate cuts and further broadening of the market.[6] Internationally, the MSCI World ex US (developed markets minus US) and MSCI EM (emerging markets) rose 13.6% and 16.9% year-to-date, with both beating the S&P’s quarterly return with gains of 7.8% and 8.7%, respectively.

The US yield curve briefly un-inverted between the 2 and 10-year but remains inverted between the 3-month and 10-year. The curve should normalize as the FED cuts rates. Compared from the start of the year to quarter-end, yields for 6-month, 2-year, 5-year, and 10-year have dropped by .86, .67, .35 and .14 percent, respectively. The spread (difference in return) between investment grade and high-yield bonds is tightening, causing us to favor higher-quality bonds, as the declining reward for lending to riskier firms may not justify the risk.

Reviewing key events from the third quarter, July was full of political developments. In Europe, the UK’s Labour party secured a landslide victory, ending Conservatives’ 14 years in power, and in France, a snap election left the country with a fractured, center-right government despite a left-wing coalition winning the most, but not a majority, of parliamentary seats. In the US, former president Trump was shot at during a campaign rally in Pennsylvania, and he picked Senator JD Vance as his running mate. Later, President Biden dropped out of the presidential race, and Vice President Kamala Harris became the Democratic nominee. For China, hints of Xi Jinping’s fourth term emerged from a meeting of its top decision-making body.

August brought short-term market turmoil. A Japanese rate hike, only the second in 17 years, caused an unwinding of the carry trade, and fears were compounded by Buffett selling almost 50% of his Apple holdings and soft US jobs data. This event is a good reminder that the market can be volatile in the short term, which is why we must take a long-term view of investing. Unless there is a distinct, immediate need for cash, there is no need to exit during a fear-induced sell-off. With your input about upcoming expenses and ongoing income, we build your portfolios to weather this short-term stress so that you have adequate cash available and do not have to sell (and actualize paper losses) when investors’ fears are driving down valuations. To visualize this, below is a graph which shows that investors were best served to do nothing. While this is for the Tokyo Stock Index, the lesson can be applied to any market[7].

In September, the FED started its rate cutting cycle with a “jumbo” 50 basis point cut and had its first dissent since 2005. Trying to secure a soft landing, the FED believes its dual mandate of stable prices and maximum employment is in balance. Inflation is nearing their 2% target with previous goods inflation from COVID supply chain disruptions now turning disinflationary. In fact, gas and energy prices are deflationary as the US produces more oil than any country in the world. While services inflation is stickier due to wage growth, this should ease as the labor market loosens. Unemployment ticked higher to 4.2% but is still low compared to historical norms. The FED’s projections for 2024 and 2025 were mixed compared to June’s forecast with current expectations of worse unemployment, lower (better) inflation, and similar economic growth for 2024 and 2025.

Looking ahead, we are monitoring the US election, geopolitical concerns, and the FED’s decisions in November and December. Academic research shows that timing the market based on who is elected is a fool’s errand; we must remain calm and stay invested. As always, we welcome any discussions about the markets and your portfolio as we enter this eventful quarter.

Staff Updates:

Kyle: It was a good start to high school for James and Johnnie. Their social scene has expanded at the larger school and the various extracurricular activities offered have been stimulating. Both boys have decided to join the wrestling team which will be a big challenge for them and am excited to see their growth throughout the season. My wife, Tabitha, also went back to school this fall. She is attending a Doctor of Nursing Practice (DNP) program at New Mexico State University. The classes are mostly held online and she should graduate early 2026. Personally, I am ready to settle into the end of the year after a busy summer and start to the fall. We try to maximize our time in the office through the end of the year to make sure all the client odds and ends are completed. However, in November, I will be meeting a group of old football teammates of mine to attend the Georgia vs Tennessee football game. It will be my first time attending a game in the South. It should be a good time.

Rob: It was a glorious autumn season here in Santa Fe with an abundance of stone fruit such as has not been seen in many years! We had cherries, plums, and peaches galore from the fruit trees behind the office. The terrible storm that hit Western North Carolina disrupted many lives and damaged many structures/roads but people there are now returning to their daily lives of school, work and recreation. People came from all over the country to help restore basic services and deliver supplies. I continue to travel back to Asheville regularly to check on our projects there and all of our properties there emerged relatively unscathed. In October, our mother-son duo of black coated retrievers was joined by the return to Santa Fe of another one of the now 5-year-old puppies, Lou, who was reunited with her master, my daughter Hannah.

Jeff: This summer we visited my oldest stepson and his wife in Santa Rosa, CA. We flew from Albuquerque to Oakland which is about a 3-hour flight. I was worried and anxious about flying with our 3-year-old granddaughter, as she is blind and she is very much into her 3 year old independence phase of “I don’t want to” and “I can do it myself.” When we walked to board the airplane, I hand guided Ariah by holding her left hand and she used her small white cane in her right hand. When we reached the plane, I had Ariah touch the metal on the outside of the plane and then the door of the plane before we entered. A flight attendant saw this and immediately came up to Ariah and said, “Hi Honey, is this your first time to fly in an airplane?” She responded “yes” and then the flight attendant said, “How would you like to come with me and meet the pilots that are going to fly the plane today?” She took Ariah by the hand, and off they went to the cockpit where she talked and talked with the pilots, and they took lots of photos. Next the flight attendant gave Ariah the microphone and told her to say hi to everyone on the plane – “Hi.” During the flight, the flight attendants continued to check on Ariah and fuss over her and she loved it. Ariah has been obsessed with airplanes and pilots ever since.

Contessa: The kids are settling into school, and we have attended several open houses for middle and high schools to help us decide where to apply to next year. We spent weeks getting ready for Samuel’s school Fall Festival, as it is tradition for the sixth-grade class to plan and serve as the attraction’s “scarers.” In October, following months of jewelry-making, Ayden sold her necklaces and earrings during the Abiquiu Studio Tour. To design and create a chainmail dress for the Trash Fashion & Costume Contest, which will be held at the 25th Annual Recycle Santa Fe Art Festival, Ayden gathered more than 3,000 aluminum can tabs with the help of our family, friends, and the staff at the office. I also attended a film screening of the documentary “Show HER the Money,” which chronicles the experiences of female entrepreneurs as they look for venture capital and angel investors to fund their businesses. The women in the office were thrilled to attend a Women’s Leadership Luncheon this month and learn from inspiring women who shared their experiences of success, resiliency, and leadership. Attending these recent events has given me a sense of empowerment and motivation, and I eagerly await other chances to network, gain knowledge, and advance in this field.

Keren: I spent the week of Labour Day on an island in the Strait of Georgia in British Columbia. I took myself on a yoga retreat led by my dear friend and yoga teacher here in Santa Fe. As a single parent with a teenager, it felt like a financial stretch as I contemplated the opportunity over several months. One day, while holding a posture in my Yin class, that small, still voice inside me said, “You need to do this,” and I listened. The moment I stepped onto the ferry, I knew I made an important choice for my self-care. Though I live in a place of extraordinary beauty, I miss water and, like so many of us, need to remove myself from my everyday surroundings to deepen both my breath and my connection with myself. I spent the week eating some of the most delicious vegetarian meals I have ever tasted, almost all of the ingredients having been grown there on the farm. Along with the vegetables, flowers grew in fields and pots, and were picked and arranged to delight the eye. The dahlias were some of the largest I have ever seen, made more beautiful only by the muted light of the golden hour. Each day was spent in practice with a group of men and women who were entirely new to me, but all of whom reflected a community I have come to call my own. My mind became quiet. My soul found rest. My heart grew. We gathered in a circle on the last day, and wrote down what we wanted to take away from our time on the farm in practice. I knew, that I must prioritize and, therefore, budget times of rest and retreat into my life. I came home inspired and renewed, and, in moments when the noise of life is too much, I can close my eyes and take myself back to that farm on the island in the middle of the water not so far away.

Chris: I am proud to report that I passed my final exam in the Chartered Financial Analyst (CFA) program and was accepted by New Mexico’s society. It was a tremendous experience, but I am happy to have more free time (Spanish is next). For life updates, Zoe and I made it inside Ballon Fiesta this year after failing to do so last year (thank you, park-and-ride!), and we also went to a pumpkin patch in Moriarty with her little sister from Toronto. Next up is hosting my dad for Thanksgiving, our first time hosting either of our parents for a holiday. This is his first time in New Mexico, so I am excited to take him to different museums and areas across the state (the Jemez Mountains are at the top of our list). Unfortunately, our 13-year-old beagle mix has taken a turn for the worst. After hiking 10 miles in Ouray last fall, she is now suffering from seizures at an increasing pace. We are trying a new medication while working with our veterinarian to ensure she has a good quality of life and maximize the time she has left with us.

Anthony: Fall is one of my favorite times of year, not just for the cooler temps but also for all the activities happening in and around town. Beginning with Santa Fe Wine and Chile, the festival continues to build up its reputation as one of the top food and wine events in the country. It’s always fun not only to try new food and wine, but also to run into familiar faces and meet visitors from all over the world. We also attended Balloon Fiesta this year and tried our best to avoid the crowd by opting instead to watch from a viewing party across the highway. Next up was the pumpkin patch in Moriarty, a tradition that my daughter looks forward to every year. Amaya is thriving in 4^th grade; her favorite subjects are math and science – she recently managed to stump a few of us here in the office with some of her math homework. There is no slowing her down this school year as she is also participating in choir and ballet. I hope everyone is doing well and getting out to enjoy all that Santa Fe has to offer this time of year.

Bonita: Days of summer are gone and the fall has surprised us all! August was action packed with final days of wedding prep and a wonderful wedding celebration for my brother and new sister-in-law. My boyfriend and I managed to escape for a couple weekend trips to Moab, UT and to Carlsbad Caverns. Balloon Fiesta was warmer than expected this year, however, it marks the last weekend of camping for us. I have enjoyed attending many home football games for the Santa Fe High Demons and look forward to the local basketball season. In September, I attended Pinnacle, a Hightower conference focused on operational efficiencies and enhancements as the world races towards AI. The conference also offered great insight on the experience we create for our clients by going above and beyond offering a service. Having been part of The Rikoon Group over the last 2 years, I appreciate that we focus on building trust and listening carefully to our clients to understand each and everyone’s unique situations and goals. I am excited for new innovations to come and for continued growth both professionally and personally. I have also been working with my Mom in preparing her estate plan and attending many of the Women in Business and Leadership events in Santa Fe. These experiences have brought her motivation and a new perspective on owning a business, being involved in the community, and in preparing for her future. I am grateful to share these moments with my Mom and be part of her her continual growth as an entrepreneur. This summer was a great season for making new connections and expanding our community. I greatly appreciated the involvement of our Latino community of business owners and leaders who have so much to share about their successes. I look forward to more Spanish-Speaking events where I can practice my Spanish and learn more about how we can support each other.

Gayle: Sometimes in life we all have an experience we look forward to, and wow it happens, and is more amazing than imagined. Such was my helicopter flight into the New Zealand Alps; first the green green landscape. It rains 200 days per year in NZ, and it’s lush (plus a bit cool and damp in the spring). Then shooting through a brilliant blue sky hole in the clouds to soar above astounding snowcapped mountains, forestry, and boulders one would not want to crash into. And then? Landing on a glacier, it’s sparkly blue just peaking through the snow, as it’s still early spring and the snow cap has just started to melt. Touring Australia (and NZ) has been my dream since I was 12, when my older brother Roger was a chopper pilot in Vietnam. He was wounded in the line of duty, and spent time in a Sydney hospital. His correspondence and gifts to our family, spurred my determination that someday I too would visit there. And I did!

One of the rules on our tour, was no discussing American politics. Well folks, as I type this, we are less than a week away from the election. There will be winners, losers and malcontents. And we will move on, the “election uncertainty” phase will be over, and I have to believe our country will be healthy, and grow, and please please outgrow the divisiveness. I’m not a proponent of one party or the other: I am pro America!

Have a safe, exciting and terrific holiday season. May it be more amazing than you can imagine.

Disclosures:

The Rikoon Group is comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC, member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC. This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is neither indicative nor a guarantee of future results. The investment opportunities referenced herein may not be suitable for all investors. All data or other information referenced herein is from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other data or information contained in this presentation is provided as general market commentary and does not constitute investment advice. The Rikoon Group and Hightower Advisors, LLC or any of its affiliates make no representations or warranties express or implied as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. The Rikoon Group and Hightower Advisors, LLC assume no liability for any action made or taken in reliance on or relating in any way to this information. The information is provided as of the date referenced in the document. Such data and other information are subject to change without notice. This document was created for informational purposes only; the opinions expressed herein are solely those of the author(s) and do not represent those of Hightower Advisors, LLC, or any of its affiliates.

Hightower Advisors, LLC is an SEC registered investment adviser. Securities are offered through Hightower Securities, LLC member FINRA and SIPC. Hightower Advisors, LLC or any of its affiliates do not provide tax or legal advice. This material is not intended or written to provide and should not be relied upon or used as a substitute for tax or legal advice. Information contained herein does not consider an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Clients are urged to consult their tax or legal advisor for related questions.

[1] Source: MFS Fund Distributors Inc: “BTN – Elections Edition 2024”

[2] BlackRock, Morningstar as of 9/30/24

[3] Magnificent 7: Apple, Nvidia, Microsoft, Amazon, Tesla, Alphabet, and Meta

[4] https://www.ftportfolios.com/Commentary/EconomicResearch/2024/10/3/three-on-thursday—another-strong-quarter-for-stocks-in-q3

[5] https://www.ftportfolios.com/Commentary/EconomicResearch/2024/10/3/three-on-thursday—another-strong-quarter-for-stocks-in-q3

[6] https://www.royceinvest.com/insights/small-cap-recap

[7] Avantis Investors, as of 09/01/2024