From Football to Finance: Lessons in Resilience and Perseverance
From Football to Finance: Lessons in Resilience and Perseverance – As a Double Huskie, a two-time alumnus of Northern Illinois University, I can’t help but draw a parallel to NIU’s stunning upset over Notre Dame as we reflect on the third quarter of 2024. Entering the game as 28-point underdogs, NIU took full advantage of every opportunity. Despite trailing late in the game, with 31 seconds left, NIU kicker Kanon Woodill calmly delivered a 35-yard field goal to secure a shocking 16-14 win. This moment serves as a powerful reminder that preparation, perseverance, and seizing the right moment are keys to success, even when the odds seem stacked against you.
The game also reminded me how often kickers are overlooked, yet they hold one of the most pivotal roles. In a sport that’s all about teamwork, the kicker stands alone when it comes time to score those crucial points. No other position has the isolated pressure and responsibility that can make or break a game or even a season. It’s the kicker’s preparation and ability to perform under pressure that turns opportunity into victory. This is much like small-cap and value investing. While often overshadowed by flashier, larger sectors of the market, small caps and value stocks can deliver strong, unexpected gains—when patience, preparation, and disciplined strategy come into play.
Let’s explore the current economic landscape and review the market performance over the past quarter:
Economy
The headline of the quarter was the Federal Reserve’s decision to reduce its target rate by half a percentage point at the September meeting, marking a significant shift in monetary policy. The Fed didn’t make this decision lightly. It reflects a blend of factors: Inflation continues to ease, unemployment has ticked up, and the Fed wants to safeguard what remains a resilient economy. Despite the rise in unemployment, the labor market is holding strong, with minimal layoffs and low initial claims for unemployment insurance. The economy still has momentum, as evidenced by a solid 3% gross domestic product (GDP) growth in the second quarter. While risks are always present, a recession seems unlikely at this point.
Stocks
After weathering some early August volatility, stocks closed the third quarter of 2024 with impressive gains. Global stocks (MSCI All Country World IMI Index) climbed 6.8%, showing broad-based growth across both domestic and international markets. U.S. large stocks (S&P 500 Index) rose 5.9%, while small caps (Russell 2000 Index) surged 9.3%. International stocks (MSCI EAFE Index) were up 7.3%, and emerging markets (MSCI Emerging Markets Index) gained 8.7%. The diversity of returns underscores the value of staying invested globally.
In an encouraging sign, our prediction that the second half of the year wouldn’t mirror the first has come to pass. Mega-cap AI stocks, which led earlier in the year, took a back seat while interest rate-sensitive sectors like utilities and real estate surged. Small-cap and value stocks, long underappreciated, stepped into the spotlight, outperforming growth and large caps. Much like a kicker winning the game in the final seconds, these sectors, along with international and emerging markets, proved that market returns often come from where we least expect them—highlighting the critical importance of diversification across sectors and global markets.
Bonds
The bond market delivered solid gains in the third quarter, boosted by expectations of lower rates ahead. U.S. intermediate-term bonds (Bloomberg U.S. Aggregate Bond Index) gained 5.2%, and international bonds (Bloomberg Global Aggregate Ex US Index) rose 3.5%. TIPS (Bloomberg Global Inflation Linked U.S. TIPS Index) climbed 4.1% as real rates declined. Rates across the yield curve dropped, with the two-year Treasury rate falling from 4.71% to 3.66%. This shift signals growing anticipation of future rate cuts. For investors sitting on excess cash in short-term vehicles like CDs or money market funds, it may be time to start thinking about reinvestment risk and the potential for lower returns on cash-like holdings moving forward.
Alternatives
Alternative investments continued to play a vital role in portfolios during the third quarter. Reinsurance (SwissRe Global Cat Bond Index) jumped 6.8%, while Lending (Cliffwater Direct Lending Index) posted a 1.9% gain. Real Assets (DJ Brookfield Global Infrastructure Index) were up 7.0%, while Event-Driven strategies (IQ Hedge Event-Driven Index) added 2.2%. However, not all alternatives performed as well; Trend Following (Credit Suisse Managed Futures Liquid Index) declined by 3%. Overall, alternatives demonstrated their value by contributing to portfolio diversification during the quarter.
This quarter reminds us to stay focused and prepared, even when markets are volatile. Just as Kanon Woodill’s field goal decided the game for NIU, we believe small disciplined decisions in investing can lead to better investing outcomes and long-term success. Broad diversification among small-cap, value, and international stocks often emerges as a game-changer when least expected.
As we look ahead, it’s crucial to remain grounded in our evidence-based strategy, knowing that every careful decision we make today could drive tomorrow’s success. We remain committed to navigating the financial landscape with the same discipline and confidence that NIU brought to the field.
Sources: Morningstar Direct, Federal Reserve, Bureau of Labor Statistics, Bureau of Economic Analysis. Indices are unmanaged, do not reflect fees and expenses, and are not available as direct investments. Past performance may not be indicative of future results.