Asset allocation is important because it helps investors manage the risk and rewards of investing. In general, investments have different levels of risk and the potential return (or reward) for taking that level of risk is a higher return. For example, investing in stocks typically has greater risk than investing in quality bonds or cash. In return for taking a higher level of risk (i.e., tolerating the ups and downs of the stock market) investors have the potential to earn higher returns. Quality bonds have less risk that stocks and offer lower return potential, and cash/cash equivalents has the least risk and the lowest return potential.
During the third quarter of 2024—July through September—the stock market offered a lively ride that demonstrated the concept of risk and reward. Major U.S. stock indices bobbed up and down throughout July before dropping sharply in the first week of August when the July unemployment report lagged expectations. The news caused investors to wonder whether the Fed had waited too long to lower rates, the economy was slowing too quickly, and a recession might be ahead, reported Will Daniel of Fortune via Yahoo!Finance.
The stock market rebounded over the remainder of the month as inflation continued to trend lower and economic data remained robust. Then, during the first week of September, the number of new jobs created in August was lower than predicted and investor confidence stumbled again. Uncertainty led to a sharp—and short-lived—decline in stock prices. From that week on, U.S. stock prices trended higher.
Over the quarter, the dips and dives of the stock market made many investors’ stomachs drop, but by the end of the quarter, stock prices overall had moved significantly higher. Josh Schafer and Karen Friar of Yahoo!Finance reported:
“Wall Street indexes recorded monthly wins to close out the last trading day of September. Notably, the S&P 500 notched its best year-to-date performance at September’s end since 1997…Over the last three months, the Dow led the major indexes’ gains, up 8.2 [percent]. The S&P gained 5.4 [percent], and the Nasdaq added nearly 3 [percent].”
Investors appear to have set aside worries about the U.S. economy and rightfully so, according to Mark Zandi, the chief economist at Moody’s Analytics. At the end of September, he wrote:
“I’ve hesitated to say this at the risk of sounding hyperbolic, but with last week’s big GDP revisions, there is no denying it: This is among the best performing economies in my 35+ years as an economist. Economic growth is rip-roaring, with real GDP up 3 [percent] over the past year. Unemployment is low at near 4 [percent], consistent with full employment. Inflation is fast closing in on Fed’s 2 [percent] target—grocery prices, rents and gas prices are flat to down over the past more than a year. Households’ financial obligations are light, and set to get lighter with the Fed cutting rates. House prices have never been higher, and most homeowners have more equity in their homes than ever. Corporate profits are robust, and the stock market is hitting a record high on a seemingly daily basis. Of course there are blemishes, as lower-income households are struggling financially, there is a severe shortage of affordable homes, and the government is running large budget deficits. And things could change quickly. There are plenty of threats. But in my time as an economist, the economy has rarely looked better.”
Last week, the S&P 500 Index and Dow Jones Industrial Average closed higher after the U.S. employment report showed 254,000 jobs were created in September. That was well above expectations. The number of jobs created in July and August were revised higher, too. Yields on many maturities of U.S. Treasuries moved higher last week.
| Data as of 10/4/24 | 1-Week | YTD | 1-Year | 3-Year | 5-Year | 10-Year |
| S&P 500 Index | 0.2% | 20.5% | 34.9% | 10.2% | 14.3% | 11.3% |
| Dow Jones Global ex-U.S. Index | -2.2 | 10.3 | 24.4 | 1.0 | 5.1 | 2.9 |
| 10-year Treasury Note (yield only) | 4.0 | N/A | 4.7 | 1.5 | 1.5 | 2.4 |
| Gold (per ounce) | -0.4 | 27.5 | 45.7 | 14.7 | 12.1 | 8.3 |
| Bloomberg Commodity Index | 1.8 | 3.5 | 0.4 | 0.0 | 5.6 | -1.6 |
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance; MarketWatch; djindexes.com; U.S. Treasury; London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
WHAT DO YOU KNOW ABOUT HOLIDAYS? Holidays and the economy are inextricably intertwined. Halloween, Thanksgiving, Hannukah, Christmas, Yaldā Night, Kwanzaa, Mother’s Day, Father’s Day, Lunar New Year and other celebrations give the U.S. economy a boost because people spend money to observe them. It works the other way, too. The state of the economy can affect how much consumers spend on holidays. When the economy is doing well, they typically have more to spend, and vice versa.
See what you know about holidays by taking this brief quiz.
- Which of the following events did Americans spend the most on in 2024?
a. Fourth of July
b. The Super Bowl
c. Patrick’s Day
d. Father’s Day
- Americans are expected to spend about $104 per person on Halloween in 2024. Some of that money will be spent on costumes. According to a National Retail Federation survey, which costume ranks in the top five for both children and pets?
a. Pumpkin
b. Ghost
c. Hot dog
d. Superhero
- In 2024, back-to-school shoppers (K-12) expected to spend the highest percentage of their budgets on which of the following categories?
a. Shoes
b. Electronics
c. Classroom supplies
d. Clothing
- A recent survey found that Gen Xers like Thanksgiving and Memorial Day holidays the best, while Baby Boomers prefer Memorial Day and Veteran’s Day. Which holidays are at the top of the list for Millennials?
a. Thanksgiving Day and Mother’s Day
b. Memorial Day and Veteran’s Day
c. Christmas and Martin Luther King Day
d. Halloween and New Year’s Eve
Weekly Focus – Think About It
“We have seasons when we flourish and seasons when the leaves fall from us, revealing our bare bones. Given time, they grow again.” —Katherine May, author
Answers: 1) d; 2) b; 3) b; 4) a
Best regards,
DEAN, JACOBSON FINANCIAL SERVICES
Securities and Retirement Plan Consulting Program advisory services offered through LPL Financial, a Registered Investment Advisor, member FINRA/SIPC. Other advisory services and investment advice offered through Dean, Jacobson Financial Services, LLC, a Registered Investment Advisor, and separate entity from LPL Financial.
