Steady Through Uncertainty

Market Review

Despite a looming election and divided government, market performance has been above average during the first nine months of 2024, with occasional volatility spikes around macroeconomic releases and Federal Reserve uncertainty. The mega-cap ‘Magnificent 7’ (NVIDIA, Apple, Microsoft, Meta, Amazon, Tesla, and Alphabet) primarily led the S&P 500, though their influence waned in Q3—a welcome shift for long-term diversified portfolios.

For the first time in several quarters, small-cap U.S. stocks outperformed, driven by lower interest rates and attractive valuations. Small-caps, often benefiting from falling rates due to their exposure to floating-rate debt, saw improved performance as borrowing costs dropped.

On the bond side, the Bloomberg U.S. Aggregate Bond Index surged 11.6% over the past twelve months. Interest rates fell by more than one percentage point, driving capital appreciation for bondholders. Coupled with already higher income levels from elevated rates, bonds are well-positioned to recover from historic losses over the last 3 years.

While the upcoming elections may bring uncertainty and short-term market volatility (click here for Riverwater’s Q3 2024 blog on the market and election cycles), history has shown that U.S. markets remain resilient through political change. According to Morgan Stanley, the S&P 500 has averaged positive returns in 19 of the last 23 election years since 1928, with an average gain of 7.1%. This means that while political events dominate the headlines, they don’t always drive long-term market trends. The performance seen in 2024 is a testament to this resilience. By staying focused on diversified, long-term strategies and avoiding emotional reactions, investors can navigate election season confidently and continue building toward their financial goals, regardless of political shifts.

Impact Example

To underscore our commitment to making the world a better place through responsible investing, we spotlight an instance of positive impact achieved by one of our fund managers through their sustainable investments. Parnassus is renowned for its expertise in ESG investing, as one of the oldest managers in the space.

Over the past year, Parnassus’s Sustainability and Stewardship Team engaged with more than 55% of its assets under management, which includes 57 companies globally. The Stewardship Team employs engagement, proxy voting, and advocacy as their three primary tools to drive long-term sustainable value creation.

One of Parnassus’s engagement themes over the past year is Responsible Artificial Intelligence, with which they engaged eight firms. One of these firms was Verisk Analytics (VRSK), an insurance data analytics provider. After two years of engagement with the company about how its predictive analytics and other AI-driven or AI-assisted products may exacerbate disparities in the insurance industry, Parnassus filed a shareholder proposal. The proposal was successfully withdrawn following the company’s agreement to publish disclosures describing policies, practices, and governance regarding the responsible use of AI. Parnassus will continue to collaborate with VRSK on this matter.

Additionally, Parnassus successfully withdrew two other shareholder proposals during the year, focusing on environmental justice and sustainable workplaces. In light of this, we anticipate that Parnassus will continue to execute engagements and deploy capital thoughtfully.

As always we appreciate your trust and confidence.