Q3 2024
October 18, 2024
Our thoughts are with those who have family or friends impacted by the recent hurricanes that devastated the Southeast. As these communities begin to recover and rebuild, we remain aware of the broader economic impacts these events may bring.
Amidst growing macroeconomic concerns, the S&P 500 managed to press forward, adding 5.25% this quarter and bringing its year-to-date return to 20.81%. Unlike previous quarters driven largely by the Magnificent Seven, this growth reflects widespread market participation, with 80% of companies exceeding earnings expectations. Our portfolio strategy has been well-positioned to benefit from this broader performance. We remain cautiously optimistic and are closely monitoring potential sources of volatility, including Federal Reserve policy shifts, the upcoming election season, rising tensions in the Middle East, and the enduring impacts of Hurricanes Helene and Milton.
The devastation from these hurricanes has far-reaching implications, with property and economic losses estimated at over $300 billion, of which only $55 billion is privately insured. Recovery will likely take years, as these events disrupted entire regions and essential supply chains. As an example, Baxter International’s North Cove manufacturing site—near Asheville, North Carolina—typically supplies approximately 60% of the IV fluids used in U.S. hospitals. They have suffered extensive damage, forcing employees out of work and the need for hospitals to begin rationing supply. Such events underscore the impacts of severe weather on national supply chains and labor markets, reshaping local economies and prompting urgent questions about how we prepare for increasingly unpredictable weather patterns.
These storms may signal a new reality, presenting long-term challenges for real estate values and raising concerns about property insurance. As severe weather grows more frequent, the need for flood and wind insurance on every home becomes an increasingly relevant consideration, and at the same time car insurance premiums are climbing due to the rising incidence of vehicle flooding.
Meanwhile, risks have continued to climb around the world. The conflict in the Middle East and Russia’s invasion of Ukraine persists with no signs of de-escalation. Jamie Dimon, CEO of JPMorgan Chase, recently said, “We have been monitoring the geopolitical situation for some time, and recent events show that conditions are treacherous and getting worse.” Recent fears of potential Israeli strikes on Iran’s oil infrastructure have signaled the possibility of further supply shocks. Per Dimon, “That’s my number one concern [geopolitics], and it dwarfs any I’ve had since I’ve been working.” We are paying close attention.
The Federal Reserve’s recent decision to cut interest rates by 50 basis points—the first reduction since 2020—adds another variable to consider. The upcoming election season compounds the complexity.
As we navigate this evolving landscape, our strategy is designed with a steady hand and vigilant risk management to embrace opportunities while also remaining ready to adapt and respond to changing conditions. As Morgan Housel says in his book Same as Ever, “[Invest] slow and steady against hard problems.”
We are grateful for the trust you’ve placed in us. Please don’t hesitate to contact us with any questions.
Sincerely,
Janet Wills
Adam Mehrer
