As we look in the rear-view mirror, we see an eventful third quarter which brought both renewed volatility and the first rate cut since the Federal Reserve cut rates in March 2020 in response to the pandemic. While market analysts were quick to point to several culprits that led to the selloff in August and catalysts that drove the rebound that continued through September, we believe one thing is clear – the market has shifted its focus away from inflation and towards the economic outlook which stood out in Federal Chair Jerome Powell’s commentary after the 50bps rate cut. “We know it is time to recalibrate our policy to something that is more appropriate given the progress on inflation. We’re not saying mission accomplished, but I have to say we’re encouraged by the progress we have made.”
As we currently sit just over a month away from election night, it is an important time to remember that elections have generally had little impact when looking at long-term investment returns as markets have often bounced back after the volatility of the primary season. Markets strongly dislike uncertainty which is why you typically see so much attention paid to elections. Once all the dust settles post-election, we believe the narrative and our focus will quickly revert back to the underlying economic outlook.
Reflecting on the previous quarter and looking ahead to the next, we have found the following statistic helpful in framing uncertainty and volatility. Corrections of 10% or more have happened in 20 of the last 35 years, with the average drawdown in that timeframe being approximately 14%. We believe this is a good reminder as volatility is not only something to be expected but also to be embraced in long term investing.1
1DeSprito, Tony. Taking Stock: Q4 2024 Equity Market Outlook. BlackRock, Sep 25, 2024.
Information in this commentary is gleaned from third-party sources, and while believed to be reliable, is not independently verified. This content is not intended to be tax, legal, investment, or fiduciary advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The strategies and/or investments discussed in this material may not be suitable for all investors. Bernardo Wealth Planning recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial advisor. Past performance does not guarantee future results.