Q3 2024
Key Takeaways: Fundamentals Over Flash:
Selective with Big Tech: While Big Tech stocks have surged, we’re staying selective, focusing on more reasonably priced opportunities. They’re still great businesses, but no longer available at reasonable prices.
Cautious on China’s Stimulus: Although China’s stimulus sparked a market rally, ongoing uncertainty, and geopolitical risks keep us on the sidelines.
Ready for Small-Cap Opportunities: With the election ahead, we’re prepared to act if lower interest rates and renewed M&A activity create opportunities for smaller companies.
I’ve always loved football. I played in high school and college, and I still find ways to connect the game to financial advice. While my love/hate relationship with the Miami Dolphins sneaks in now and then, it was the Bears-Commanders game that recently delivered the perfect lesson.
With two seconds left and 52 yards to go, the Commanders attempted a Hail Mary—one of football’s most thrilling plays. The ball, tipped just short of the end zone, landed perfectly in the hands of a wide-open receiver. Touchdown. Game over. Commanders win.
Here’s the real kicker: A Bears player, distracted by the crowd, turned his back mid-play to taunt fans. That same player tipped the ball—right into the Commanders' hands. It’s a tough reminder that flashy moves feel good in the moment but often cost you in the end.
In wealth-building, the same rule applies. Chasing trends, splurging, or riding hype might feel exciting, but sacrificing discipline for showmanship puts more than your portfolio at risk—it can let down your entire team: your family, your future, and your goals.
And that brings us to the core of our Q3 review. This quarter and year showed us that flashy plays might capture headlines, but long-term success comes from discipline, patience, and strategy. As central banks shift policies, tech valuations stretch, and the election approaches, the key question is: Are we staying focused on what really matters, or are we turning our backs at the wrong moment?
A Quick Market Recap
Before we dive in, here’s a brief market recap through Q3 2024:
Global markets (MSCI All Country World Index) rose 6.5% in Q3, 19.1% YTD, and 32.4% over the past year.
US markets (S&P 500) remain strong, up 20.1% YTD, driven largely by tech giants (the “Mag 7”). However, many stocks treaded water earlier this year, raising questions about the rally’s sustainability.
We maintain an overweight to US small caps (Russell 2000), up 11.2% YTD. These companies appear positioned for further gains as they await lower interest rates and a revival of M&A activity.
Bonds (Bloomberg US Aggregate) are up 4.5% YTD, providing welcome relief to portfolios after years of low returns.
Central Banks and the Illusion of Easy Wins
The Federal Reserve cut interest rates by 50 basis points this quarter. While the cut was expected, the size of the initial reduction caught many by surprise— with the Fed still 'data dependent,' the pace and extent of future easing will likely unfold gradually. Inflation has cooled to more manageable levels, but employment remains sluggish, and businesses are looking for cheaper borrowing to grease the wheels again.
The Fed’s move opened the door for China to introduce its own stimulus measures, sparking a sharp rally in Chinese stocks that had been heavily beaten down. But here’s the rub:
Relying on the Chinese government to deliver consistent outcomes is a bit like betting on a coin flip. With the Communist Party controlling both policy and narrative, uncertainty lingers.
Add in the potential for tariffs or renewed trade tensions depending on the outcome of the US election, and you’ve got a geopolitical cocktail that could disrupt portfolios.
China’s renewed focus on growth intrigues us, but we’re not backing up the truck just yet. China’s intentions are clear—they want and need growth—but the transparency and execution? Not so much. That’s why we’ve always taken a cautious stance on direct investments in China, limiting exposure in client portfolios. At the end of the day, you invest in businesses, not economies. You can still tap into growth by owning great companies and letting them manage the local complexities.
For now, we’re intrigued but patient. Staying within our circle of competence is key, and we’ll wait for the right opportunities to emerge.
US Tech: Great Businesses, Wrong Price
US tech stocks have been market darlings for years, delivering strong returns. But today, the “Mag 7” are trading at valuation multiples nearly 70% higher than a decade ago. We’ve kept the portfolio underweight in Big Tech, focusing on opportunities with better valuations. Even Warren Buffett has trimmed his stake in Apple—not because it’s a bad company, but because even extraordinary businesses aren’t always worth their price. In 2016, when Buffett first purchased, Apple traded at 10.8x EV/Cash Flow. Today? Closer to 34x.
It’s easy to get swept up when the market rewards exuberance, but flashy plays often backfire—like the Bears' mid-play celebration. Our portfolios remain light on tech, not because we doubt the companies, but because price matters. As Munger says, “The big money is not in the buying and selling, but in the waiting.” And we’re waiting for fundamentals to align with reasonable valuations.
Presidential Election: Small-Cap Opportunities in the Wings
Where are fundamentals aligning with reasonable valuations? We see opportunity in US small-cap companies. While small caps have lagged global and large US companies by ~23% and ~45% since 2021, the outlook is improving. Small companies rely heavily on debt and capital markets, and lower interest rates should provide much-needed support.
This election season could also trigger significant shifts. If Trump wins, we expect a resurgence in corporate takeovers and M&A activity—welcome news for small caps, as many rely on takeover premiums to boost their value.
We aren’t betting on any particular candidate—markets tend to perform well under both red and blue. Our focus is on making green for clients. As interest rates drop and M&A activity returns, small caps could be the biggest beneficiaries.
Just like in football, success comes when preparation meets opportunity. We plan to be ready when the whistle blows, knowing that discipline, patience, and sound fundamentals win the game—on the field and in the market.
Looking Ahead: Stay in the Game, Stick to the Plan
As we enter the final quarter of 2024, we remain committed to our long-term strategy. Markets will fluctuate, central banks will tinker with rates, and politicians will make promises—but we won’t be swayed. Our focus stays on fundamentals: identifying quality investments, avoiding unnecessary risks, and executing with discipline.
Ask yourself: Are you chasing flashy, short-term wins? Or are you sticking to the fundamentals that build wealth over time? Wealth is built by choice, not chance.
We’re grateful for your trust and partnership. Together, we’ll finish the year strong—and smart.
Truly yours,
Jason Blumstein, CFA
CEO & Founder
Julius Wealth Advisors, LLC
Let’s Connect and Stay Disciplined
Have questions or want to explore the next steps? We’re here to help you stay on track and make smart financial moves.
Let’s connect, plan, and position ourselves for success—not just for this year, but for the long game. Together, we win.
Disclosures:This piece contains general information that is not suitable for everyone and was prepared for informational purposes only. Nothing contained herein should be construed as a solicitation to buy or sell any security or as an offer to provide investment advice. The information contained herein has been obtained from sources believed to be reliable, but the accuracy of the information cannot be guaranteed. Past performance does not guarantee any future results. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. For additional information about Julius Wealth Advisors, including its services and fees, contact us or visit adviserinfo.sec.gov.