US equities continued to strengthen in the second half of the year, with various market indices nearing or achieving record highs as the third quarter drew to a close. However, this period saw a level of volatility not witnessed since the onset of the COVID pandemic. Developed markets outside the US experienced modest gains while emerging markets also saw increases over the quarter. In the bond sector, US Treasury securities appreciated, pushing the benchmark 10-year yield below 4%.¹

On September 18, the Federal Reserve reduced the federal-funds rate by 50 basis points to a range of 4.75% to 5%.² This marked the first-rate reduction since the market disruptions related to COVID in March 2020. The decision was motivated by a decreasing unemployment rate, inflation decreasing to its lowest point since 2021, and the core consumer price index for August—excluding the more volatile food and energy sectors—rising 3.2% year over year.³

(For a more thorough breakdown, see IFA Founder and CEO Mark Hebner's video below.) 

Domestic Equities 

Stocks, which had generally increased throughout the year despite a minor setback in April, faced significant drops in early August and again in early September. Nonetheless, the markets managed to recover these losses on both occasions and ended the quarter on a higher note, buoyed particularly after the Federal Reserve's rate cut. As of September 20, the S&P 500 Index had ascended by 4.8% for the quarter. In contrast, the tech-centric Nasdaq saw a more modest increase of 1.4%.

Large-cap stocks continued to perform well although their outperformance streak ended with U.S. Small Company leading the way with a Q3 return of 8.22%. Small-cap stocks as a whole did quite well finishing the quarter all in positive territory.  

International Equities

In Q3, all International Indexes finished the quarter in positive territory. Leading the way was the IFA International Small Company Index which topped returns of large-cap indexes ending the quarter up 9.37%. The next best index, however, turned out to be the IFA International Small Cap Value Index coming in with a return of 8.39%. The IFA International Value Index came in 3rd finishing with a 7.00% return for the quarter. 

Emerging Markets Equities

Stocks issued by companies based in developing countries continued to show positive results in Q3. In particular, IFA's Emerging Markets Index outperformed its sister emerging markets benchmarks. Meanwhile, all of these IFA emerging markets indexes finished the quarter with gains. Growth outperformed small-caps and small-caps outperformed value.

Real Estate Equities

Last quarter saw real estate markets around the world decline and finish the quarter in negative territory. Well what a difference a quarter can make as Q3 saw REITs outperform all other asset classes ending the quarter with a double digital return of 16.46% for the IFA Global REIT Index. As we say it's almost impossible to know which asset class will outperform the rest from quarter-to-quarter or year-to-year. This is why we always recommend diversifying your portfolio not only to capture the outperformance of asset classes, but also to reduce risk by giving investors access to a wider range of investment opportunities. For more on what a diversified portfolio should look like click here.

Fixed-Income

Treasuries experienced their most extended monthly winning streak in three years, as US government bonds recorded gains for the fourth consecutive month in August. The upward trend in prices persisted into September, leading to a decline in yields. By September 20, the benchmark 10-year yield had fallen to 3.73%, a reduction of over one percentage point from its recent high in October 2023. Yields on US Treasuries decreased across various maturities, with the 10-year yield rising above the 2-year yield. This marked a reversal from the yield curve inversion that had persisted for just over two years.

For Q3, IFA's fixed-income benchmarks produced returns topping 1%. The IFA Two-Year Global Fixed Income Index and the IFA Five-Year Global Fixed Income Index both led with a return of 1.40% whereas the IFA One-Year Fixed Income Index came in a close second place at 1.36%. The IFA Short Term Government Index finished up 1.29%. 

IFA Index Portfolios

With stocks and bonds both gaining ground, IFA Index Portfolios finished the third quarter with positive results. As might be expected, portfolios with heavier weightings to stocks did particuarly well in Q3.

We like to encourage novices as well as experienced investors to engage in an ongoing conversation with an IFA wealth advisor regarding each person's risk capacity. Besides offering an online Risk Capacity Survey, we provide to each client a complimentary and holistic financial plan. 

Below is an overview of how several IFA Index Portfolios performed in Q3 as well as during the previous quarter. All of these returns are shown net of IFA's maximum annual 0.90% advisory fee through September 30, 2024.

Each quarter, we monitor our recommended funds for clients. As part of that process, we've developed a rating system. For a summary of those results, please feel free to check IFA's latest Performance Monitoring Report (PMR). 

The wealth of IFA's educational materials are available for Apple iOS and Android devices via the IFA App. This free App is available to download from both the Apple App Store and the Google Play Store for Android.

Footnotes

1. Return based on the Bloomberg US Treasury Bond Index as of September 20. Bloomberg data provided by Bloomberg Finance LP. Source for US Treasuries: US Department of the Treasury

2. The federal-funds rate is the overnight interest rate at which one depository institution (like a bank) lends to another institution some of its funds that are held at the Federal Reserve.

3. Jeanna Smialek, "Inflation Cooled in August, Keeping the Fed Poised to Cut Rates," The New York Times, September 11, 2024.

Performance results for actual clients that invested in accordance with the IFA Index Portfolio Models will vary from the backtested performance due to the use of funds for implementation that differ from those in the index data, market conditions, investments cash flows, mutual fund allocations, changing index allocations over time, frequency and precision of rebalancing, not following IFA's advice, retention of previously held securities, tax loss harvesting and glide path strategies, cash balances, lower advisory fees, varying custodian fees, and/or the timing of fee deductions.

This is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product or service. There is no guarantee investment strategies will be successful.  Investing involves risks, including possible loss of principal. Performance may contain both live and back-tested data. Data is provided for illustrative purposes only, it does not represent actual performance of any client portfolio or account and it should not be interpreted as an indication of such performance. IFA Index Portfolios are recommended based on time horizon and risk tolerance. Take the IFA Risk Capacity Survey (www.ifa.com/survey) to determine which portfolio captures the right mix of stock and bond funds best suited to you. For more information about Index Fund Advisors, Inc, please review our brochure at https://www.adviserinfo.sec.gov/ or visit www.ifa.com.