The major development in 3Q24 was the Federal Reserve’s decision to cut interest rates by -0.50%, the first rate cut of this cycle. It came as the Fed shifted its focus, with unemployment rising to a 33-month high and inflation moving back to target.

Investors expect the Federal Reserve to start cutting interest rates at its next meeting on September 17th. Fed Chair Jerome Powell signaled the move at last month’s Jackson Hole conference by saying, “The time has come for policy to adjust".

By the end of June, the S&P 500’s +15% return ranked as the 16th strongest first-half return since 1931. It was also more than 7% above the average full-year return, despite only being at the mid-year mark. A logical question to ask is whether the stock market can continue to trade higher.

This letter recaps the second quarter, discusses investors’ focus on the Federal Reserve, and looks ahead to the remainder of 2024.

The S&P 500 set a new all-time high in May after trading lower in April. The technology-heavy Nasdaq 100 Index gained +6.2% and set a new all-time high, with mega-cap stocks like Nvidia, Apple, Microsoft, and Facebook-parent Meta leading the recovery. What caused stocks and bonds to rebound?

Ten months have passed since the Federal Reserve last raised interest rates. The pause in rate hikes follows a 17-month period where the central bank raised interest rates by +5.00%. It was the fastest and most aggressive rate hiking campaign in decades, but the focus is shifting to rate cuts.