I’ve always liked the fall season. Many people do. Goldilocks temperatures, beautiful fall foliage, crisp cool mornings and sunny, shorter days. However, it just occurred to me that I’m now in my personal fall. I turned 62 this summer. Based on actuarial lifespan estimates, I’m definitely in my fall, maybe even late fall? I’m happy and healthy, but I did not expect to be old. Somehow, I thought that just happens to other people. As my grandfather Jim used to say, “getting old is not for sissies.” Probably a politically incorrect term, but he died twenty years ago and started saying it twenty years before that. Forty years ago, politically correct didn’t exist. However, I have found that one benefit of aging is wisdom. I thought I was a good investment expert back when I was younger (30’s-40’s). Today, I know I’m better but let me share a little humility lesson life just handed me.
Every other Thursday, we at Bill Few have an Investment Policy meeting. I used to chair the meeting, but that has been turned over to Tom Beilstein, our Chief Investment Officer. Tom asked me if I had any thoughts on the stock markets. I rattled off a few facts, then mentioned my biggest concern was the impending port strike up and down the east coast of America. I’d done some research on this issue and had some newer information that made me feel strongly that this would be a prolonged strike with a significant impact on the economy and potentially the stock markets. Several other people at the meeting praised my insight and agreed with me, further stoking my sense of wisdom and certainty. Within twenty-four hours of my comment, the strike had been settled. Port workers one, Mike zero! Just another example of why we don’t try to time the markets at Bill Few Associates.
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Even though my opinion is respected and my wisdom well-earned after 40 years in the market, my best instincts and research were wrong. Even if I had been correct and the strike was very long, and I had raised cash and sold longer-term investments, when would it end? How would I be wise enough to know when to buy back those positions? What type of tax bill might I’ve created by short-term trading activity around that one event. If I hadn’t traded on that event, what if I’d decided to trade on the war in Ukraine or the war in Israel or the Federal Reserve interest rate cut or the election, etc., etc., etc. More often than not, financial markets go up. Capitalism and entrepreneurship overcome most negative news. Stay invested, stay diversified and stay patient. Growing old with your investments will help you gain wealth and wisdom. Next time they want my opinion, I’ll be a little more humble.
Now for a quick review of the last three months. The third quarter of 2024 was strong for stocks as the S&P 500 gained 5.89%. What made the quarter different from recent quarters was large U.S. technology stocks were not the market leaders. The NASDAQ, which focuses on large growth stocks, was only up 2.76% during the quarter. Meanwhile, both international stocks (up 7.26%) and small cap stocks (up 9.27%) led the way. It remains to be seen if leadership has changed or if this was a short-term bump in the road for technology stocks. We believe in diversification and welcome leadership beyond just a few of the largest companies. The third quarter was also positive for fixed income investors as the Bloomberg U.S. Aggregate Bond Index returned 5.20%. Interest rates fell from their peak as investors anticipated the Fed lowering short-term rates. We remain constructive on bonds as the Fed has indicated that the direction of interest rates should be lower over the next year or two, which is a tailwind for fixed income returns. As we look back, 2024 has been quite a good year for investors. Typically, in the months leading up to a contested election, market volatility goes up. Once the election has concluded, the market tends to return to its normal course as some uncertainty is removed. As mentioned earlier, we do not try to trade on an election outcome. Pundits predicted doom and gloom for the markets first if Trump and then Biden won, yet the market kept going up during both of their presidencies. Sticking to your plan and staying diversified is our recommended course of action, both for today and into the future.
Mike Kauffelt, CFA
Tom Beilstein, CFA
Data Source: Morningstar
