Investment Commentary: Q3 2024

Global equities and bonds posted strong returns in a quarter marked by significant volatility. The Community Foundation’s Corporate Commingled Fund posted a net return of 5.9% in the third quarter, which was 40 basis points ahead of its Policy Benchmark and driven by its broad diversification across global equity markets and strong manager performance.

The dominating event that led all markets upward was the first cut by the Federal Reserve (“the Fed”) to its policy rate, which denoted the end of the hiking cycle. Supporting their actions was the continued decelerating inflationary environment. Inflation slowed to an annualized rate of just 2%, as measured by Fed’s preferred metric, the Personal Consumption Expenditures () Price Index. This prompted the Fed to cut its policy rate by 50 basis points, marking a clear shift in monetary policy and the end of the Fed’s fastest rate-hiking cycle in the past twenty years. 

Continuous rate cuts could boost transactions by lowering borrowing costs, making acquisitions more attractive and enhancing exit opportunities. However, the skill of managers in capitalizing on these exit opportunities will become increasingly important in this market environment. Comparable to the broader industry, returns from private market investments generally and in the Commingled Fund has been muted over the past 12-months but the outlook for this part of the portfolio is improving.  

Underneath the strong quarterly returns are a slew of volatile data points, such as:

• A disappointing jobs report in July raised concerns that high interest rates might push the economy into a recession. 
• The unwinding of the yen carry trade, a strategy where investors borrow Japanese yen at low cost to invest in higher-yielding assets, led to a sharp increase in volatility in early August. 
• Investor scrutiny on AI spending weighed on large-cap tech performance, leading equity market returns to broaden beyond the dominant Magnificent Seven (Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta Platforms, and Tesla). 

Despite this volatility, economic activity in the U.S. points to continued strength, although the economic picture abroad is less clear. In China, sluggish consumption, real estate deleveraging and risks of deflation have pressed the government to provide massive stimulus packages to jumpstart the economy. Other central banks around the world have lowered policy rates as inflation has come down.

As always, we aim for the best possible prospects for success across a wide range of potential economic scenarios. The Community Foundation continues to monitor its liquidity and positioning closely. We remain confident in its ability to meet the needs of the community and its stakeholders consistent with our stewardship mission.

Questions? Contact A.F. Drew Alden
SVP and Chief Investment Officer, The Community Foundation for Greater New Haven;
President and CEO, TCF Mission Investments Company

*The Corporation is a Connecticut registered investment adviser and part of The Community Foundation for Greater New Haven.
 

Learn more about The Community Foundation's investments.