The Takeaway
The market is going to fluctuate.
Diversification isn’t dead.
There is nothing permanent except change.
Will third-quarter 2024 stock market volatility register as a mere blip on investment growth charts? Or will it be remembered as an inflection point? Only time will tell who's right: bears heralding the bursting of the artificial intelligence bubble or bulls who say the market is just "climbing a wall of worry." Pessimism tends to sound smarter. But it's the optimists who've been repeatedly vindicated in recent years.
What's clear is that the cycle of greed and fear has been turning. AI enthusiasm, which pushed the Morningstar US Market Index to a 44% gain from the start of 2023 through the midway point of 2024, gave way to jitters over the economy and equity prices. Jobs reports, inflation prints, and earnings announcements caused selloffs. Both an unexpected interest-rate hike by the Bank of Japan and an expected rate cut by the US Federal Reserve contributed to volatility.
Though equities have ridden out the bumps to post healthy gains this year, signs of change are visible beneath the surface. Value stocks are beating growth in the third quarter. Small caps have rallied. The Morningstar Global Markets ex-US Index is even with its American counterparts in dollar terms since July 1. High-quality fixed-income assets have thrived. The Morningstar US Core Bond Index is up more than 5% in the third quarter.
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