[Market Updates] 3rd Quarter 2024

In the blink of an eye we’re only three months away from 2025, let us take a look at two key market developments for the third quarter of 2024 that you should pay attention to.

United States: Starting With A Bang

During the Fed meeting in September, the central bank of the United States had once again shooked the market by starting with a 50 basis point (0.5%) rate cut instead of a 25 basis point (0.25%) rate cut that the majority of the market expected.

In a rare move, Powell also made a standing victory during his press conference stating that the country’s bout with high inflation was over and that the justification for a higher-than-anticipated rate cut is to ensure that the central bank does not fall behind the curve in loosening the monetary condition which could result in an unwanted economy slow down.

He had also reinforced the Fed’s belief that the US economy remained strong, stating that many economic indicators such as the unemployment claims and unemployment rate are hovering at a level that is not worrying to the central bank yet.

Why does this matter: As investors, a lower interest rate environment is always welcome as that would usually translate to better fundamentals via lower borrowing costs and higher bottom-line earnings.

However, from a valuation standpoint, having a larger-than-anticipated rate cut at the peak of the market would further elevate market euphoria and push valuations to even higher levels despite already trading at levels that are considered overvalued.

Furthermore, sceptics would question the move to cut 50 basis points instead of 25 basis points and draw an inference that the economy may be weaker than the market’s current expectation such that the Federal Reserve have to make such a drastic move now to prevent further economic slowdown that can push the economy into a recession.

(It is kind of like the “what do you know that we don’t” kind of moment with this rate cut between the Federal Reserve and the market participants)

Investors looking at lump sum investing should pay special attention to both the valuations that they are entering and also the impact of a further weakening of the USD against SGD which could potentially drag your long-term performances.

That being said, given that we are investing via dollar-cost-averaging with a long investment duration, such short-term volatility is inconsequential in the long run. Overall, my long-term view of the developed markets and the role that they have to play in our overall portfolio allocation remains unchanged.

While we may be spooked by future market movements – should valuations revert to mean or should we experience an unexpected recession - I think long-term investors should not be too worried about what's going on with the price actions.

China: Turning On The Money Printer

In a similar fashion (almost as if they were waiting for the US to cut their rates before doing anything), the Chinese government and central bank had also shocked the market by unleashing one of the country's most daring policy campaigns in decades to put a floor to the economic woes that China has been facing over the last 3 years.

These easing measures include:

Relaxed rules for home buyers – all of which point towards improving the demand for home purchases (i.e. lower downpayment, ability to purchase more than 1 home in tier 1 city and further lowering of borrowing cost of existing homeowners)
Further cut to reserve requirement ratio and key policy rates – Unleashing up to 1 Trillion Yuan in long-term liquidity for banks which could be injected into the economy via higher lending and investments.
Strengthen fiscal policies via financial assistance, cash handouts and subsidies of up to 500 million yuan to stimulate and boost consumption and encourage spending.

All of these measures are evident that the government is finally getting serious with putting a stop in the economic pessimism that had resulted in deflationary pressures and potentially causing a negative economic feedback loop that pushes the economic activity and growth lower than that the government can tolerate.

Why does this matter: As investors with a considerable allocation towards Asia equity, unfortunately, the performance of China is excruciatingly important towards investors' confidence in the region and hence the performance of Asia investments.

Overall, I feel that this move by the Chinese government is long overdue and while it is the right step forward, I think that investors should pay attention to how this would play out in the short run and whether this short-term optimism that the market had experienced following the announcement of the policy can turn into a sustainable long term recovery in both domestic and global confidence towards China’s economic future.

In the government’s quest to facilitate a change in the economic building blocks – from domestic investment to domestic consumption – the government had unintentionally resulted in a major slowdown in both areas which was the root of all its economic woes over the last three years.

While a new engine of growth had emerged in China to help prevent the country from entering into a recession, for the country to really pull itself out of the “economic slump” and get back to its long-term growth trajectory sustainably, it is vital that the Chinese consumer base steps up and contribute more to its economy – hopefully in a sustainable manner unlike those of the western consumer base.

Should confidence be restored, I think investors could see a huge recovery in their investments as the Chinese and Asia market reverts to their mean given that their valuations are relatively low as compared to their global counterparts.

Long Story Short

The third quarter of 2024 can be summarized by the following image:

Moving into the fourth quarter of 2024, it is likely that the focus for this quarter will be dominated by the US election which at the current stage is anyone’s guess. That’s all I have for the 3rd Quarter 2024 Market Updates, if you have any questions or concerns revolving around your investments, do reach out to me directly.

On a side note, I’ve finally completed the eBook: “Retire With REITs” that I’ve been working on over the last 1 year. If you are interested in learning more about REITs investing, you can grab a copy through the website or just PM me directly!