US Economic Outlook

If you could wish your way to economic success thus far this year, that dream would be close to what has transpired. Most important, the air appears to have gone out of the great concern about inflation.  At the time this article is being drafted, inflation is close to normal.  Those who thought we were a step away from a recession with unemployment ticking up for months have to confront a surprising 254,000-job gain in employment in September. Corporate profits, in the meantime, also have exceeded people’s expectations.

If you look at gross domestic product (GDP) and other economic data that came out over the third quarter, the figures continue to be fairly robust and strong.  And with the more accommodative stance from the Federal Reserve once it moved to cut interest rates in September, it looks like the probability of a harsh slowdown in the economy has been lowered.

Year-to-date, stock market indexes have been robust.  While the Magnificent 7 technology companies: Amazon, Apple, Alphabet, Meta Platform, Microsoft, Tesla and Nvidia, have led the way the whole year, since July other stocks have joined the parade of shares registering material price increases.

The stock market has exceeded normal valuation levels, although much of this is due to the technology sector. Excluding Americans’ infatuation with tech, the rest of the market — while modestly to moderately higher than normal — now provides attractive areas.  Some of the domestic stock market enthusiasm and economic strength may be due to the US government’s pre-election spending efforts, and it’s good to remember that future inflation could potentially turn up again if Trump wins and significantly limits purchases of foreign goods. However, economic momentum as we start the fourth quarter is strong.

International Economic Outlook

Our international investments did very well in the third quarter and outperformed year-to-date. In an amazing reversal, China, led by its government’s efforts to strengthen the economy and stock markets, recently moved up more than 21% in the space of one week, as measured by the Shanghai Stock Exchange Composite Index before it closed for an Oct. 1-7 national holiday.   That would be like the S&P 500 moving up 1,200 points in just five sessions.

China equities have been ridiculously cheap and are demonstrating that Value investing is still a mover in the stock market. We will be watching China carefully to see whether the government’s recent favorable actions continue.  As a consequence of the recent China purchases, we recently have added to overall international assets held, as we believe they are more attractive than domestic stocks at present.

Altfest Portfolio Performance

Equities and bonds delivered robust performances in the third quarter, as mentioned, driven by investors’ optimism about the chance for a Fed interest-rate cut.  The S&P 500 gained 5.9% for the quarter, lifting the index to an all-time high at the close of the quarter.  Bonds, as represented by the Bloomberg U.S. Aggregate Bond Index, rose 5.2%, erasing that index’s losses in the first six months.

Some encouraging developments emerged in the third quarter that distinguished the period from the prior two quarters.  Most important, U.S. equity performance was no longer fully dominated by the Magnificent 7 stocks.  The fact that most of those stocks declined while the S&P 500 gained solidly during the third quarter was an indicator that a broader selection of stocks was participating in the rally, signaling that the equity market’s upward momentum could continue.

Aided by China’s phenomenal equity market performance in September, the MSCI Emerging Markets Index gained 8.9% in the third quarter, outperforming the U.S. market.

Given the prospect of multiple future interest-rate cuts by the Fed, our funds that invest in interest-rate-sensitive sectors, such as utilities, real estate and infrastructure, also outperformed. The table below shows our funds with the highest and lowest returns for the first nine months of this year.  All but one of the lower-return funds are bond funds.

One market trend to note in the third quarter was investors’ rotation out of Growth-oriented stocks, which had strong gains in the past 18 months, into Value-oriented stocks. This was evidenced by the S&P 500 Value Index’s higher return of 9.1% for the quarter versus the S&P 500 Growth Index’s 3.7% gain. Such performance divergence was also observed among Altfest’s in-house strategies.

Altfest Portfolio Adjustments

In this eventful third quarter, the markets experienced a reversal of trends from the first half of the year, with the Fed rate cut in mid-September and international currencies gaining ground against the U.S. dollar. That created a supportive environment for our investments and also fueled some key portfolio changes, including:

• Removing hedges on longer-maturity U.S. Treasury bonds as inflation uncertainty receded.
• Exiting our remaining longer-maturity Treasury positions after the Fed rate cut, as we no longer needed the downside hedges built into these long-bond positions to protect us from interest-rate and inflation volatility.
• Initiating a position in semiconductor makers and increasing our allocations in biotechnology, health care, U.S. small-capitalization stocks, regional banks and Chinese equities.

Looking at the current quarter, we are monitoring the potential for stronger-than-expected U.S. economic growth, which could lead to a rethinking of rate-cut expectations. We are also closely watching the upcoming U.S. elections and their potential policy implications, both domestic and international, which could create market volatility.

We’re Here to Help

Altfest Personal Wealth Management has been guiding clients in their investment decision-making since 1983.  Our advisors take the time with each and every client to listen and ask thoughtful questions.  This allows us to design a tailor-made custom investment and financial plan to meet your exact needs.  Want to find out how Altfest can help you?  Schedule a complimentary consultation or give us a call at (212) 406-0850.

 

 

 

Past performance may not be indicative of future results.  Indexes are not available for direct investment.  Actual performance of investments attempting to mimic indexes will be reduced by fees and expenses.

Investment advisory services provided by Altfest Personal Wealth Management (“APWM”). All written content on this site is for information purposes only. Opinions expressed herein are solely those of APWM, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. All investing involves risk, including the potential for loss of principal. There is no guarantee that any investment plan or strategy will be successful.