LPWMG

During the third quarter, the S&P 500 advanced strongly, gaining 5.5%. As anticipated, we experienced a notable pullback in August, with the market dropping over 6% from high to low, largely driven by a weaker-than-expected Employment report. The bond market, however, performed well with interest rates falling due to signs of a weakening economy. The Bloomberg Barclays U.S. Aggregate Bond Index, which measures the performance of the U.S. investment-grade bond market, increased by 5.20% for the quarter.

So far in October, the bond market has weakened. For instance, the yield on the 10-Year Treasury hit a low of about 3.6% in September, but has now risen to over 4%. This increase in yield, driven by a stronger-than-expected Employment report, is significant. The 10-Year Treasury yield is a key factor in determining stock market valuations, and higher rates generally put downward pressure on the market. A 10% increase in bond yields can have a substantial impact.

It’s important to remember that the Employment report is based on a survey, which can often be revised later. Despite this, the market tends to react strongly to the initial data. In contrast, we monitor more concrete data, like the ADP Employment numbers and initial jobless claims. Along with other indicators, such as the Federal Reserve’s Beige Book, these suggest that economic trends are not particularly strong. While government spending remains robust—especially in areas like Artificial Intelligence infrastructure—the consumer is facing significant challenges due to the cumulative impact of inflation. Although some may feel like we are in a recession, the data does not support this, largely due to strong technology cycles and high government spending ahead of a contentious election.

Our investment committee remains cautious about current stock market valuations, especially given the rise in bond yields. Technology and related sectors now account for about 43% of the S&P 500, and current price-to-earnings multiples for the index are approximately 24x for 2024 and over 21x for 2025. While these valuations are slightly lower than during the 2000 tech bubble, they are still concerning.

At Lansdowne Private Wealth Management, our focus is on building durable portfolios with attractive risk/reward characteristics. We prioritize investments that offer both distributable income and significant appreciation potential, enabling our approach to perform well through various market cycles.

We continue to focus on quality growth and income investments that are attractively valued, even in this highly valued market. As always, my team and I are here to answer any questions you may have.

Our Best Always,

Bob

Robert O'Braitis
CEO
Chief Investment Strategist