What we saw: Equity markets continued marching upward during the third quarter of 2024 as financial conditions eased and the Federal Reserve began an anticipated interest rate lowering cycle in September.  

Early in 2024 global equity returns were strongly concentrated in US domestic markets and driven by Artificial Intelligence (AI) headlines that propelled a very narrow (but heavily weighted) segment of broad indexes.  

The third quarter represented a broadening of returns and a shift in focus to macro-economic data affecting the Federal Reserve’s interest rate outlook. The hiring slowdown coincided with inflation data trending down toward the Federal Reserves favored historical targets. This provided the rationale to cut the Federal Funds rate by 50 basis points even though equity markets were already near all-time highs alongside stable GDP growth and significant federal deficit spending.  

While in total it was a strong quarter for equities, markets are anticipatory in nature and experienced significant bouts of volatility early in the third quarter as result of the mixed macro signals. Volatility is a normal and healthy part of shifting economic cycles as investors look to reallocate and reduce exposure risk.  

The breadth of market returns improved in 3Q. Technology sector market leadership took a back seat to interest rate sensitive stocks such as utilities and real estate stocks. International and emerging market stocks also performed well during the quarter with a weaker US dollar and China’s announcement of a fiscal stimulus plan. Fixed Income markets experienced a rally during the quarter due to the Federal Reserve interest rate cuts, rebounding from a period of rapidly rising rates. The Bloomberg US Aggregate Bond Index returned 5.2% during the quarter due to a combination of income and price appreciation.  

Looking forward: It is important to remember trading markets are forward looking in nature and are not necessarily a direct reflection of underlying economic conditions. The underpinnings of a healthy economy remain intact regardless of the headlines likely to drive short-term volatility in the fourth quarter. The major anticipated headline will be the US presidential election. Historical information indicates that the winning candidate or party will have little long-term impact on market returns, and initial market reactions are not as strong (positive or negative) as most anticipate.  

The Federal Reserve’s future rate cut actions and outlook as well as corporate earnings announcements are likely to heavily influence returns in the short term. Stocks generally perform well during periods when rate cuts happen outside of a recession.   

Fundamentals, such as equity valuations, and corporate growth and profitability drive markets in the long term. The supportive economic conditions of rate cuts, continued growth and innovation driven by demand for AI chips and a stable US consumer sentiment all indicate corporate earnings will remain steady.  

Equity valuations remain a concern though. In particular, large cap equity valuations are stretched at 21.5 times forward price-to earnings, well above the historical average of 16.7 times. However, history indicates the confluence of overall slowing economic growth – but not to the point of recession – and declining interest rates support a scenario of continued dispersion of positive performance outside of just the tech sector.  

Large market rotations can take years to play out and are reminders to have patience and invest for the long term. Allocation and time invested will drive returns over the long term.  

NCCF investment performance: Investment results continued the positive momentum from the previous quarter. Most NCCF managers posted mid-single digit gains for the quarter and range from 19-25% on a rolling one-year basis. The NCCF Investment Fund trailed the Broad 70/30 benchmark for the rolling one-year measure, returning 19.0% and 25.4% respectively. On the quarter, the NCCF Investment Fund returned 4.2%. 

More market commentary is available from NCCF’s investment advisor, Graystone Morgan Stanley. For investment information specific to your fund, please contact your Donor Engagement Officer or email support@nccommunityfoundation.org.   

	1-Year	3-Years	5-Years	10-Years	15-Years
All Managers (Net Weighted)	21.8%	4.3%	8.4%	6.9%	8.0%
NCCF Investment Fund	19.0%	3.4%	7.9%	6.2%	7.2%
Benchmark – Broad	25.4%	5.3%	8.8%	7.3%	7.7%
Benchmark – Blended	24.2%	5.2%	9.0%	8.0%	9.0%
Benchmark – Broad: This benchmark is a general approach to investment. 70% of the MSCI All Country World Equity Index and 30% of the Bloomberg Barclays Aggregate Bond Index.
Benchmark – Blended: This benchmark takes a more diversified approach to investment. 35% R1000, 15% Russell Midcap, 5% R2000, 10% MSCI EAFE Net, 30% Barclays Govt/Credit Bond, 5% FTSE Treasury Bill 3 Month.