Stocks continued to advance across the board in the third quarter. Large domestic companies, measured by the Standard & Poor’s 500, gained 7.8%, while smaller U.S. firms, reflected in the Russell 2000, climbed 12.0%. The Nasdaq Composite, heavily weighted in technology companies, rose 11.2%. Foreign firms, generally speaking, advanced as well with the Dow Jones World Index (ex US) gaining 6.4%.
Demand for stocks remained high throughout the quarter, as investors seemed to embrace positive data and somewhat disregard more negative information. The positives include solid corporate earnings, tax and regulatory relief, and continued enthusiasm surrounding AI. Add to that a Fed rate cut of 25 basis points and the anticipation of two more this year. While the job market is cooling, it certainly is not cratering, and the trade war has yet to power a significant rebound in inflation. The consensus view is that a tariff-fueled recession is unlikely. The result has been 28 record closes for the S&P 500 this year.
That’s not to say that investors have totally discounted the negatives. Many remain nervous, primarily due to stretched corporate valuations. It can be unsettling to hear the term “bubble” tossed around by media market prognosticators, especially regarding AI names. We are seeing a resurgence of meme stock and other individual investor speculation. Some are concerned with the resurgence of SPAC (special purpose acquisition companies) offerings. Many of those ended poorly a few years back. Throw into the mix geopolitical concerns surrounding Russia/Ukraine, China/Taiwan and other hotspots, and you can understand why some pessimists are sweating.
So what do we expect going forward? While it is impossible to accurately and consistently predict short-term market movements, we are optimistic for the medium-term and certainly the long-term. Keep in mind a market contraction will occur at some point; a matter of when, not if. That is the normal, healthy course of market behavior. But the successful long-term investor does not try to “time” these movements. Rather, they adhere to a carefully constructed long-term portfolio designed to provide the expected return and volatility characteristics consistent with their unique long-term financial objectives.
Please know that we welcome your calls, emails, texts, etc. And, as always, we adhere to our discipline of strategic asset allocation and style diversification; a strategy designed to mitigate overall portfolio volatility and enhance long-term returns.