US stocks built on a strong first half, with many market indices at or close to record levels as the third quarter neared an end.1 But those gains came amid a spike in volatility unseen since the COVID pandemic.2 Fulfilling expectations that had been building for months, the US Federal Reserve in September cut interest rates—another thing investors hadn’t seen since 2020—as core inflation eased.3 Developed equity markets outside the US rose, and emerging markets were slightly higher for the quarter.4 In the bond market, US Treasuries posted price gains, sending the benchmark 10-year yield below 4%.5
The Fed’s cut to the federal-funds rate, by half a percentage point to the 4.75%–5% range, came on September 18.6 Policymakers cited the uncertain economic outlook and higher unemployment rate as part of the reasoning for lowering rates by a half point instead of a quarter point.7 It was the first rate cut since March 2020’s COVID-related market turmoil. The move came after inflation hit its lowest level since 2021, with the August core consumer price index, which excludes more-volatile food and energy items, showing prices rose 3.2% from a year earlier.8
Aside from a brief downturn in April, stocks had trended up for much of the year. But in early August and again in early September, major stock indices sank. They recovered losses both times and were higher as they neared the quarter’s end, helped by a rise after the Fed’s move. The S&P 500 Index rose 4.8% for the quarter as of September 20.9 The technology-heavy Nasdaq lagged behind the broader market, gaining 1.4%. Nvidia and the other Magnificent 7 stocks were hit especially hard during the August declines, collectively losing about $1.3 trillion in market value at one point before rebounding.10
Treasuries saw their longest monthly winning streak in three years, as US government bonds posted a fourth month of gains in August.12 Prices continued to rise in September, sending yields lower, with the benchmark 10-year yield declining to 3.73% as of September 20, more than a percentage point off its recent peak in October 2023. US Treasury yields decreased across the curve, and the 10-year yield rose above the 2-year.13 The reverse—a yield curve inversion—had been the case for just over two years.
1. Connor Smith, “S&P 500 and Dow Rally to New Highs,” Barron’s, September 19, 2024.
2. The Cboe Volatility Index (VIX), a measure of US stock market volatility, reached as high as 65.7 on August 5, its highest level since the COVID pandemic.
3. “Midyear Review: Stocks Maintain Momentum at Year’s Halfway Point,” Dimensional Fund Advisors, June 2024; inflation data is as defined by the consumer price index (CPI), US Bureau of Labor Statistics, 2024; the core CPI is an aggregate of prices paid by urban consumers for a typical basket of goods, excluding food and energy, from “Consumer Price Index for All Urban Consumers,” Federal Reserve Bank of St. Louis, 2024.
4. Developed international stocks, as represented by the MSCI World ex USA Index, added 5.6%, and emerging markets stocks, as represented by the MSCI Emerging Markets Index, returned 2.7%, as of September 20. MSCI data © MSCI 2024, all rights reserved.
5. Return based on the Bloomberg US Treasury Bond Index as of September 20. Bloomberg data provided by Bloomberg Finance LP. Source for US Treasuries: US Department of the Treasury.
6. The federal-funds rate is the overnight interest rate at which one depository institution (like a bank) lends to another institution some of its funds that are held at the Federal Reserve.
7. “Federal Reserve Issues FOMC Statement,” Federal Reserve, September 2024.
8. Jeanna Smialek, “Inflation Cooled in August, Keeping the Fed Poised to Cut Rates,” The New York Times, September 11, 2024.
9. S&P data © 2024 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.
10. The Magnificent 7 stocks include Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla. Named securities may be held in accounts managed by Dimensional; between July 31 and August 5, the Magnificent 7 lost roughly $1.3 trillion in market value. Source: Bloomberg.
12. Ye Xie, “Treasuries Set for Longest Run of Gains Since 2021 as PCE Awaits,” Bloomberg, August 29, 2024.
13. “Daily Treasury Par Yield Curve Rates,” US Department of the Treasury.
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