Financial markets enjoyed a robust quarter, across and within asset classes. For the first time in 2024 both bonds and stocks rose solidly, as the inflation headwind finally stood down, leading the way to an aggressive first rate cut by the Federal Reserve in September.
A sharp sell-off in stocks is in its third day today, in a remarkable about-face from a strong rally during and after a fairly low-key and market-friendly Federal Reserve meeting just last Wednesday.
Both stocks and bonds recovered from April losses, a month that featured an inflation reality check, and posted positive returns for the second quarter as the inflation data and investor attitudes improved.
With healthy economic conditions persisting, and recession worries pushed farther out on the horizon, stocks carried their late 2023 strength through 2024’s first quarter, leading to their best start since 2019. This benefited Thayer client portfolios, which began the year fully weighted to equities.
A topsy turvy year ended on a strong note, thanks to a very good closing kick in November and December. Bonds rallied sharply from what had been a slightly negative year to date late October position, and historic drop in 2022. Measured by the inclusive U.S. Aggregate (AGG) index, bonds posted a 6.8% fourth quarter gain, bringing the year to +5.7%, thus offsetting part of their 13.0% loss in 2022. Stocks also surged, essentially erasing their big 2022 losses. The All-Country World Index (ACWI) gained 11.0% and 21.2% in the quarter and year, the latter figure almost making up for an 18.2% 2022 drop.
Stocks and bonds both retreated in the third quarter, respectively reducing and reversing year-to-date gains. A September stock sell-off more than offset gains from the prior two months, with the ACWI world stock index posting a 2.7% quarterly loss after a 4.3% drop in the final month. Modest bond losses in the first two months became much more significant by quarter-end, as the broad AGG index lost 3.0% in the three months after a 2.5% drop in September. Year-to-date, the ACWI is still up 9.9%, while the AGG is down 1.0%.
Stocks posted strong returns in the second quarter, building on first quarter gains and creating a very solid first half of 2023. The S&P 500 index posted an 8.7% gain in the recent three months, bringing its six-month rise to 16.9%, and crossing a bull market (20%+) threshold from its October lows. The inclusive world measure, the ACWI, posted 6.3% and 14.2% gains over the three and six-month periods.
The opening quarter of the year finished with gains for both stocks and bonds, on the heels of significant losses in 2022. The inclusive all-country world index (ACWI) and S&P 500 index gained 7.4% and 7.5%, respectively, while the AGG bond index rose by 3.2%.
