Welcome to our third quarter market perspectives. It feels strange writing about the strength of the markets, the resilience of the economy, the broad stability of the employment outlook, and the first Federal Reserve rate cut in four years. It is strange because many of our colleagues, clients, and friends in Tryon, Asheville and the Western North Carolina region are struggling. Hurricane Helene devastated towns, destroyed homes and businesses, and shook people’s psyches. As I write this, many are still without power, water, internet and only have spotty, if any, cell service.
During the storm weekend, our business continuity team met via video conference, to focus on the safety and welfare of our colleagues. We felt immense relief and joy on Monday when we confirmed that all Modera colleagues were accounted for and secure.
We also went to task making sure our affected clients’ financial needs were handled without interruption. This past week emphasized the value of teamwork and our commitment to supporting one another and our clients. Teams in other Modera offices stepped up to handle calls and back up displaced colleagues, ensuring clients received support and that financial plans and portfolios were seamlessly and effectively managed. Rebuilding the Asheville and Western Carolina areas will take time and effort, but they will recover — stronger and better than ever.
Thank you for your support,
George Padula, CFA, CFP, Co-Chief Investment Officer
Market Commentary
A major headline of the quarter was the Federal Reserve’s (Fed) interest rate cut. The Fed Funds rate was lowered by 0.50%, from 5.25%-5.50% to 4.75%-5.00%. This announcement featured a new “dot plot,” indicating expectations for an additional 0.5% in cuts by year-end and potentially another 1% through 2025.
The Fed is aiming for a “soft landing” to maintain economic stability, leveraging lower inflation and a strong employment market for solid footing in the years ahead.
The third quarter underscored why diversification matters. While the first half of the year saw U.S. Large Cap stocks (especially a few tech names) dominate, Q3 showcased a broader distribution of equity returns across geographies, company sizes, and styles. Global Real Estate, Emerging Markets, and International Developed Equities outperformed U.S. Equities. Additionally, U.S. Small Cap companies generally outperformed Large Caps, and value-oriented stocks yielded higher returns than similarly sized growth stocks during this period.
Global real estate surged 17% in the third quarter, outperforming the S&P 500’s 5.9% and the MSCI EAFE’s 7.3%. Anticipation of rate cuts boosted the Bloomberg Aggregate Bond Index by 5.2%. U.S. High Yield bonds have gained approximately 8% year-to-date.
The third quarter underscored the importance of diversification, as market sentiment broadened from just a few “hot” sectors. Lower interest rates and a resilient economy benefited most markets in the quarter.
We believe that a globally diversified portfolio, covering various company sizes and styles, allows investors to capitalize on market rotations and protect against sudden sector changes.
Source: YCharts
A few words on the election
As we begin the final quarter of 2024, financial markets and the economy have defied the expectations. Instead of recession, the economy has grown, and inflation rates have fallen.
Many investors are concerned about the presidential election’s potential impact on the economy. While policies can influence taxes, trade, and regulation, shifts are usually gradual, and impacts are often overestimated. Election rhetoric often differs significantly from enacted policies.
Market or economic crashes don’t necessarily occur with a change in administration. Historically, the stock market has grown under both major political parties. The key drivers of market performance—economic cycles, earnings, and valuations—are far more critical than who occupies the White House.
Staying focused on these factors can lead to better investment outcomes.
Who says bonds are boring?
Rate cuts are difficult to analyze because why the Fed cuts rates may matter more than the timing or magnitude. The Fed has typically cut rates during economic crises, like in 2008 and 2020. In contrast, the current rate cycle aims for a “soft landing,” similar to the mid-1990s, which set the stage for a long economic expansion and bull market.
It’s been said that the Fed’s job is to pull away the punch bowl just as the party starts. In 2022, when the Fed raised rates, the Bloomberg U.S. Aggregate Bond Index declined 13%. In his September comments, Fed Chairman Powell stated, “I don’t see anything in the economy right now that suggests the likelihood of a recession — sorry, of a downturn, is elevated.”1 Chairman Powell wants to keep the party going and the U.S. Bond Index has responded with an 11.6% gain over the 12 months ending September 30, 2024.
Investors who flocked to money market funds for their high, yet variable rates, will find those rates declining. Meanwhile, investors holding bonds with higher, fixed rates have seen their investments become more valuable, benefiting from both higher yields and potential price appreciation if rates continue to fall.
Why bonds now?
Our fixed income strategy focuses on four key parameters: income, diversification, quality, and risk management.
Bonds add stability to a portfolio, because they are generally less risky than stocks. Bonds generate income, which is valuable during equity market declines. Municipal bonds offer tax-free income, making them advantageous for those in higher tax brackets.
Bonds offer diversification benefits, as owning a mix of government, municipal, and corporate bonds with varying maturities reduces the risk associated with any single bond type. Additionally, bonds can be used to match future cash flow needs, allowing investors to purchase bonds with maturities aligned with upcoming expenses, like tuition.
Analyzing a bond or bond portfolio involves considering interest rates, maturity, credit rating, issuer, taxes, the overall interest rate environment, the yield curve shape, and expectations for future rate changes.
Bonds carry risks such as default, prepayment, unexpected inflation, and interest rate changes. However, a diversified bond portfolio can help mitigate these risks, particularly default risk. Despite recent challenges, maintaining balance across fixed income asset classes remains essential for effective investment strategies.
The bottom line?
With the Fed cutting rates, the election approaching, and markets near all-time highs, it’s crucial to focus on long-term financial goals rather than short-term events. While risks are inherent to investing, how investors respond can determine their success. Rather than trying to time the market for a pullback, it’s wiser to maintain a well-constructed portfolio that can withstand various market environments.
Reflections on a 20+ Year Career in Wealth Management: Bill Hansen CFA, CMT, Co-Chief Investment Officer
As you may be aware, after a combined 21 years with Parsec and Modera, I’ve decided it’s time for me to move on to the next chapter and will be retiring from the industry on December 31, 2024. It has always been a goal of mine to retire before a “normal” retirement age, however you define that (I’ll be 57 shortly). In advance of that, I’d like to share a few reflections that I have learned over time.
There are several good, valid investment strategies out there—and many bad ones.
Focus on our pillars of broad diversification, no market timing and low cost.
If you don’t understand something to the point where you can explain it to someone else, you should think twice about making that investment.
There are many smart people in the investment industry, but it is still hard to predict the future.
Even if you do predict an economic event or news item correctly, the market may not react the way you think it will. I call this the “one step removed” problem, since the market’s reaction is one step removed from the data point or news item in question.
Because of the above, don’t focus an outsized amount of your time and resources on predictions.
Emotional control is equally important in investment success as due diligence and investment research. Financial news can focus people’s attention on short-term news and trends, which can be detrimental to one’s long-term success.
Having a financial plan, following it, and reviewing it periodically are just as important as investment selection in achieving one’s goals.
As one of my mentors said, “don’t get too high on the highs or too low on the lows.”
From recent events in Western North Carolina:
My neighbors and I have concluded it is better to have water with no power than power with no water.
We are more fortunate than many.
Disasters (natural or financial) bring out both the best and worst in people. But I have seen a lot more of the best than the worst. It is so encouraging to see neighbors coming together to clear roads, share generators, feed one another and share resources.
Like bear markets, this too shall pass.
You will notice that many of my reflections reinforce our investment philosophy, which is why it has been my pleasure to work for our clients for as long as I have.
As always, thank you for your trust and confidence in Modera.
Indexes are unmanaged, statistical composites, and their returns do not reflect payment of fees an investor would pay to purchase the securities they represent. Such costs would lower performance. It is not possible to invest directly in an index. The indexes include a different number of securities and have different risk characteristics. Past performance of the indexes and benchmark is no indication of future returns.
S&P 500 (TR) – Represents the 500 largest U.S. traded stocks.
MSCI EAFE (TR Net) – Represents mid-cap and large-cap companies in developed markets across the globe.
MSCI Emerging Markets IMI (TR Net) – Represents small, mid-sized, and large companies in emerging market countries.
The MSCI World Real Estate Sector Index is a market capitalization index that tracks the performance of large and mid-cap real estate companies in 23 developed countries.
Bloomberg US Aggregate Bond Index, or the Agg, is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the United States.
The Bloomberg US Corporate High Yield Index measures the performance of the US dollar-denominated, high-yield, fixed-rate corporate bond market.
The Russell 1000 Growth Index is a gauge of the performance of large-cap US companies with growth characteristics.
The Russell 1000 Index is a U.S. stock market index that tracks the highest-ranking 1,000 stocks in the Russell 3000 Index
The Russell 1000® Value Index measures the performance of the large- cap value segment of the US equity universe.
The Russell 2000® Growth Index measures the performance of the smallcap growth segment of the US equity universe.
The Russell 2000 Index® measures the performance of the 2,000 smallest companies in the Russell 3000 Index.
The Russell 2000® Value Index measures the performance of the smallcap value segment of the US equity universe.
Modera Wealth Management, LLC (“Modera”) is an SEC registered investment adviser. SEC registration does not imply any level of skill or training. Modera may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. For information pertaining to Modera’s registration status, its fees and services please contact Modera or refer to the Investment Adviser Public Disclosure Web site (www.adviserinfo.sec.gov) for a copy of our Disclosure Brochure which appears as Part 2A of Form ADV. Please read the Disclosure Brochure carefully before you invest or send money.
This article is limited to the dissemination of general information about Modera’s investment advisory and financial planning services that is not suitable for everyone. Nothing herein should be interpreted or construed as investment advice nor as legal, tax or accounting advice nor as personalized financial planning, tax planning or wealth management advice. For legal, tax and accounting-related matters, we recommend you seek the advice of a qualified attorney or accountant. This article is not a substitute for personalized investment or financial planning from Modera. There is no guarantee that the views and opinions expressed herein will come to pass, and the information herein should not be considered a solicitation to engage in a particular investment or financial planning strategy. The statements and opinions expressed in this article are subject to change without notice based on changes in the law and other conditions.
Investing in the markets involves gains and losses and may not be suitable for all investors. Information herein is subject to change without notice and should not be considered a solicitation to buy or sell any security or to engage in a particular investment or financial planning strategy. Individual client asset allocations and investment strategies differ based on varying degrees of diversification and other factors. Diversification does not guarantee a profit or guarantee against a loss.
Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, and CFP® (with plaque design) in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
If you are not a current client but would like to receive pertinent information about how we help people like you, please sign up now. We will send you helpful content and webinar invitations. Thanks for your interest!
Investment Commentary: Q3 2024
George Padula
Co-Chief Investment Officer, Wealth Manager & Principal
Bill Hansen
Co-Chief Investment Officer, Principal
Hello everyone,
Welcome to our third quarter market perspectives. It feels strange writing about the strength of the markets, the resilience of the economy, the broad stability of the employment outlook, and the first Federal Reserve rate cut in four years. It is strange because many of our colleagues, clients, and friends in Tryon, Asheville and the Western North Carolina region are struggling. Hurricane Helene devastated towns, destroyed homes and businesses, and shook people’s psyches. As I write this, many are still without power, water, internet and only have spotty, if any, cell service.
During the storm weekend, our business continuity team met via video conference, to focus on the safety and welfare of our colleagues. We felt immense relief and joy on Monday when we confirmed that all Modera colleagues were accounted for and secure.
We also went to task making sure our affected clients’ financial needs were handled without interruption. This past week emphasized the value of teamwork and our commitment to supporting one another and our clients. Teams in other Modera offices stepped up to handle calls and back up displaced colleagues, ensuring clients received support and that financial plans and portfolios were seamlessly and effectively managed. Rebuilding the Asheville and Western Carolina areas will take time and effort, but they will recover — stronger and better than ever.
If you wish to donate, many organizations, including the United Way of Asheville and Buncombe County and Manna Food Bank, are seeking supplies and funds.
Thank you for your support,
George Padula, CFA, CFP, Co-Chief Investment Officer
Market Commentary
A major headline of the quarter was the Federal Reserve’s (Fed) interest rate cut. The Fed Funds rate was lowered by 0.50%, from 5.25%-5.50% to 4.75%-5.00%. This announcement featured a new “dot plot,” indicating expectations for an additional 0.5% in cuts by year-end and potentially another 1% through 2025.
The Fed is aiming for a “soft landing” to maintain economic stability, leveraging lower inflation and a strong employment market for solid footing in the years ahead.
The third quarter underscored why diversification matters. While the first half of the year saw U.S. Large Cap stocks (especially a few tech names) dominate, Q3 showcased a broader distribution of equity returns across geographies, company sizes, and styles. Global Real Estate, Emerging Markets, and International Developed Equities outperformed U.S. Equities. Additionally, U.S. Small Cap companies generally outperformed Large Caps, and value-oriented stocks yielded higher returns than similarly sized growth stocks during this period.
Global real estate surged 17% in the third quarter, outperforming the S&P 500’s 5.9% and the MSCI EAFE’s 7.3%. Anticipation of rate cuts boosted the Bloomberg Aggregate Bond Index by 5.2%. U.S. High Yield bonds have gained approximately 8% year-to-date.
The third quarter underscored the importance of diversification, as market sentiment broadened from just a few “hot” sectors. Lower interest rates and a resilient economy benefited most markets in the quarter.
We believe that a globally diversified portfolio, covering various company sizes and styles, allows investors to capitalize on market rotations and protect against sudden sector changes.
Source: YCharts
A few words on the election
As we begin the final quarter of 2024, financial markets and the economy have defied the expectations. Instead of recession, the economy has grown, and inflation rates have fallen.
Many investors are concerned about the presidential election’s potential impact on the economy. While policies can influence taxes, trade, and regulation, shifts are usually gradual, and impacts are often overestimated. Election rhetoric often differs significantly from enacted policies.
Market or economic crashes don’t necessarily occur with a change in administration. Historically, the stock market has grown under both major political parties. The key drivers of market performance—economic cycles, earnings, and valuations—are far more critical than who occupies the White House.
Staying focused on these factors can lead to better investment outcomes.
Who says bonds are boring?
Rate cuts are difficult to analyze because why the Fed cuts rates may matter more than the timing or magnitude. The Fed has typically cut rates during economic crises, like in 2008 and 2020. In contrast, the current rate cycle aims for a “soft landing,” similar to the mid-1990s, which set the stage for a long economic expansion and bull market.
It’s been said that the Fed’s job is to pull away the punch bowl just as the party starts. In 2022, when the Fed raised rates, the Bloomberg U.S. Aggregate Bond Index declined 13%. In his September comments, Fed Chairman Powell stated, “I don’t see anything in the economy right now that suggests the likelihood of a recession — sorry, of a downturn, is elevated.”1 Chairman Powell wants to keep the party going and the U.S. Bond Index has responded with an 11.6% gain over the 12 months ending September 30, 2024.
Investors who flocked to money market funds for their high, yet variable rates, will find those rates declining. Meanwhile, investors holding bonds with higher, fixed rates have seen their investments become more valuable, benefiting from both higher yields and potential price appreciation if rates continue to fall.
Why bonds now?
Our fixed income strategy focuses on four key parameters: income, diversification, quality, and risk management.
Bonds add stability to a portfolio, because they are generally less risky than stocks. Bonds generate income, which is valuable during equity market declines. Municipal bonds offer tax-free income, making them advantageous for those in higher tax brackets.
Bonds offer diversification benefits, as owning a mix of government, municipal, and corporate bonds with varying maturities reduces the risk associated with any single bond type. Additionally, bonds can be used to match future cash flow needs, allowing investors to purchase bonds with maturities aligned with upcoming expenses, like tuition.
Analyzing a bond or bond portfolio involves considering interest rates, maturity, credit rating, issuer, taxes, the overall interest rate environment, the yield curve shape, and expectations for future rate changes.
Bonds carry risks such as default, prepayment, unexpected inflation, and interest rate changes. However, a diversified bond portfolio can help mitigate these risks, particularly default risk. Despite recent challenges, maintaining balance across fixed income asset classes remains essential for effective investment strategies.
The bottom line?
With the Fed cutting rates, the election approaching, and markets near all-time highs, it’s crucial to focus on long-term financial goals rather than short-term events. While risks are inherent to investing, how investors respond can determine their success. Rather than trying to time the market for a pullback, it’s wiser to maintain a well-constructed portfolio that can withstand various market environments.
Reflections on a 20+ Year Career in Wealth Management: Bill Hansen CFA, CMT, Co-Chief Investment Officer
As you may be aware, after a combined 21 years with Parsec and Modera, I’ve decided it’s time for me to move on to the next chapter and will be retiring from the industry on December 31, 2024. It has always been a goal of mine to retire before a “normal” retirement age, however you define that (I’ll be 57 shortly). In advance of that, I’d like to share a few reflections that I have learned over time.
There are several good, valid investment strategies out there—and many bad ones.
There are many smart people in the investment industry, but it is still hard to predict the future.
Emotional control is equally important in investment success as due diligence and investment research. Financial news can focus people’s attention on short-term news and trends, which can be detrimental to one’s long-term success.
From recent events in Western North Carolina:
You will notice that many of my reflections reinforce our investment philosophy, which is why it has been my pleasure to work for our clients for as long as I have.
As always, thank you for your trust and confidence in Modera.
1 https://www.wsj.com/livecoverage/fed-interest-rate-cut-inflation-live-09-18-2024/card/powell-doesn-t-see-elevated-likelihood-of-economic-downturn-2VNfUN7jUuZ7z6O8cfTA
YCharts ©2024 YCharts, Inc. All rights reserved. The information contained herein: (1) is proprietary to YCharts, Inc. and/or its content providers; (2) may not be copied, reproduced, retransmitted, or distributed; and (3) is provided AS IS with all faults and is not warranted to be accurate, complete, or timely. YCHARTS, INC. AND ITS CONTENT PROVIDERS EXPRESSLY DISCLAIM, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY WARRANTY OF ANY KIND, WHETHER EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, ACCURACY OF INFORMATIONAL CONTENT, OR ANY IMPLIED WARRANTIES ARISING OUT OF COURSE OF DEALING OR COURSE OF PERFORMANCE. Neither YCharts, Inc. nor its content providers are responsible for any damages or losses arising from the use of this information. Past performance is no guarantee of future results. YCharts, Inc. (YCharts) is not registered with the U.S. Securities and Exchange Commission (or with the securities regulatory authority or body of any state or any other jurisdiction) as an investment adviser, broker-dealer or in any other capacity, and does not purport to provide investment advice or make investment recommendations. This report has been generated through the application of the analytical tools and data provided through ycharts.com and is intended solely to assist you or your investment or other adviser(s) in conducting investment research. You should not construe this report as an offer to buy or sell, as a solicitation of an offer to buy or sell, or as a recommendation to buy, sell, hold or trade, any security or other financial instrument. For further information regarding your use of this report, please go to: ycharts.com/about/disclosure.
Indexes are unmanaged, statistical composites, and their returns do not reflect payment of fees an investor would pay to purchase the securities they represent. Such costs would lower performance. It is not possible to invest directly in an index. The indexes include a different number of securities and have different risk characteristics. Past performance of the indexes and benchmark is no indication of future returns.
S&P 500 (TR) – Represents the 500 largest U.S. traded stocks.
MSCI EAFE (TR Net) – Represents mid-cap and large-cap companies in developed markets across the globe.
MSCI Emerging Markets IMI (TR Net) – Represents small, mid-sized, and large companies in emerging market countries.
The MSCI World Real Estate Sector Index is a market capitalization index that tracks the performance of large and mid-cap real estate companies in 23 developed countries.
Bloomberg US Aggregate Bond Index, or the Agg, is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the United States.
The Bloomberg US Corporate High Yield Index measures the performance of the US dollar-denominated, high-yield, fixed-rate corporate bond market.
The Russell 1000 Growth Index is a gauge of the performance of large-cap US companies with growth characteristics.
The Russell 1000 Index is a U.S. stock market index that tracks the highest-ranking 1,000 stocks in the Russell 3000 Index
The Russell 1000® Value Index measures the performance of the large- cap value segment of the US equity universe.
The Russell 2000® Growth Index measures the performance of the smallcap growth segment of the US equity universe.
The Russell 2000 Index® measures the performance of the 2,000 smallest companies in the Russell 3000 Index.
The Russell 2000® Value Index measures the performance of the smallcap value segment of the US equity universe.
Modera Wealth Management, LLC (“Modera”) is an SEC registered investment adviser. SEC registration does not imply any level of skill or training. Modera may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. For information pertaining to Modera’s registration status, its fees and services please contact Modera or refer to the Investment Adviser Public Disclosure Web site (www.adviserinfo.sec.gov) for a copy of our Disclosure Brochure which appears as Part 2A of Form ADV. Please read the Disclosure Brochure carefully before you invest or send money.
This article is limited to the dissemination of general information about Modera’s investment advisory and financial planning services that is not suitable for everyone. Nothing herein should be interpreted or construed as investment advice nor as legal, tax or accounting advice nor as personalized financial planning, tax planning or wealth management advice. For legal, tax and accounting-related matters, we recommend you seek the advice of a qualified attorney or accountant. This article is not a substitute for personalized investment or financial planning from Modera. There is no guarantee that the views and opinions expressed herein will come to pass, and the information herein should not be considered a solicitation to engage in a particular investment or financial planning strategy. The statements and opinions expressed in this article are subject to change without notice based on changes in the law and other conditions.
Investing in the markets involves gains and losses and may not be suitable for all investors. Information herein is subject to change without notice and should not be considered a solicitation to buy or sell any security or to engage in a particular investment or financial planning strategy. Individual client asset allocations and investment strategies differ based on varying degrees of diversification and other factors. Diversification does not guarantee a profit or guarantee against a loss.
Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, and CFP® (with plaque design) in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
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