Obermeyer Wood News | Fall 2024 — Obermeyer Wood Investment Counsel

Marketpoint: Volatility, Resilience, and a Fed in Easing Mode

As we reflect on the third quarter of 2024, we recognize the uncertainty many of you may feel amid volatile yet impressive markets, charged politics, and rising geopolitical tensions. While the path ahead may seem unclear, we remain encouraged by the economy's resilience and are confident in investors’ ability to navigate charged headlines. With strong consumer spending, a durable labor market, and easing inflation, there are reasons for optimism, and we continue to thoughtfully position client portfolios for long-term success.

Looking Ahead: Election Season and Fiscal Policy

Equity markets showed strength in the third quarter of 2024, with major indices extending their gains for the year despite heightened volatility over the summer. In early August, markets were rattled by turbulence resulting mostly from the rapid rise in the Japanese yen relative to the U.S. dollar. The currency fluctuation that resulted from the Bank of Japan raising interest rates in 2024 for the first time since 2007 caused global investors to unwind complex trading strategies, triggering selloffs in global equity markets. These developments, coupled with concerns about a cooling U.S. economy, led to a 6% drop in the S&P 500 in just three trading days in August, with the Magnificent 7 stocks declining nearly 10% within the first week of the month.¹

Investor sentiment was further tested by weak guidance from some tech giants, exacerbating concerns about narrow market breadth. However, these declines were short-lived. The VIX, an index that tracks expected short-term volatility in equities, surged above 65 in early August, marking the largest intraday jump on record, but the subsequent return to more stable conditions reflected the resilience of the broader market. A more discerning focus on valuation and fundamentals, coupled with positive economic data and the expectation for U.S. interest rate cuts in September, helped markets recover by the end of August.

By the end of the quarter, the S&P Equal Weighted Index outperformed its cap-weighted counterpart, signaling an expansion of market strength. The small-company-focused Russell 2000 also showed notable relative strength, ending the quarter up nearly 9%. These relative moves illustrated the rotation out of tech and into value and cyclical stocks.²

Economy: Rates and Jobs

The expectations for the Federal Reserve’s monetary policy actions dominated market headlines throughout the summer. While the Fed had signaled all year that September would likely see the implementation of its first rate cut, the size of the rate cut—either .25% or .5% —remained the topic of intense speculation. Nine trading days before the end of the quarter, the Fed’s FOMC announced a 50 basis-point cut—its first easing move since 2020. This aggressive rate cut was larger than many market participants expected, causing uncertainty about whether the Fed had identified deeper concerns in the economic outlook. However, investors appeared to be reassured of the U.S. economy’s relative health by Fed Chair Jerome Powell’s comments later in September, when he noted that “this is not a committee that feels like it is in a hurry to cut rates quickly.”³ The cut, which lowered the Fed Funds rate to 4.75%-5%, signaled a shift in the Fed’s focus from fighting inflation to supporting the labor market.

Throughout the quarter, economic data releases played a key role in shaping market sentiment. In early July, a lower-than-expected inflation report gave confidence that overall prices are stabilizing, while weaker-than-anticipated July payroll data raised concerns that the labor market might be cooling too quickly. However, the Fed emphasized that while inflation has cooled, allowing it to begin easing policy, it will remain cautious about future rate cuts, monitoring incoming data closely.

In the broader context, the U.S. economy maintained solid growth during the summer, driven by resilient consumer spending. Despite rising unemployment, fears of a steep recession were mitigated by a lack of excess in cyclical sectors and continued consumer strength. While inflation appears to be on track to meet or get close to the Fed’s 2% target, where interest rates will ultimately settle is an open question and one that investors will be watching closely.

Client Portfolios: Navigating Volatility and Finding Opportunity

As always, our focus remains on positioning client portfolios for long-term wealth protection and creation. However, we remain vigilant during periods of short-term volatility not only to help our clients navigate the ups and downs but also to capitalize on attractive opportunities dislocations in the markets present. This quarter presented several opportunities for us to make strategic moves amid market swings.

In July and August, we took advantage of declines in the technology sector, adding a position in a dominant semiconductor chip designer whose shares had been pressured but whose fundamentals remain strong. Additional new positions in client portfolios, including a European enterprise software company poised to benefit from AI integration and a steady insurance firm with solid balance sheet strength, align with our broader strategy of taking a diversified approach to and looking beyond headline names to companies utilizing technologies like AI to enhance operations, drive margin expansion, and deliver earnings growth. We have also been focused on expanding our equity dividend strategy in portfolios, as this sector becomes more appealing with interest rates declining.

In the bond market, we continue to prioritize shorter-term Treasuries and high-quality credits. The yield curve has started to normalize, with 2-year Treasury rates now lower than 10-year rates. We remain cautious about the size and speed of further rate cuts, and believe staying shorter on duration is prudent given the potential for more moderate easing by the Fed.

Looking Ahead: Election Uncertainty and Geopolitical Conflicts

With the U.S. presidential election less than a month away, we expect heightened political rhetoric and potential market-moving events to drive short-term volatility. However, we urge clients to stay focused on long-term fundamentals, as data show that market returns during election years tend to remain positive and election results have rarely had dramatic effects on financial markets. It’s critical to look past political noise and focus on the economic drivers that ultimately shape stock prices: earnings, sector performance, and macroeconomic trends.

We are also keeping a close eye on the geopolitical landscape as tensions in the Middle East appear poised to rise even further and the prospect for a wider regional conflict increases.

Though the quarter was marked by periods of volatility, the market showed resilience, supported by broadening earnings growth and hopes for a more dovish Fed policy. While risks remain, we believe investors will be rewarded in the long run by focusing on high-quality companies with solid fundamentals.

_{1) “Magnificent 7 Stocks Shed $653 Billion in Market Cap Today,” Barron’s, August 5, 2024}
_{2) Bloomberg Data}
_{3) “Chair Powell Remarks at the National Association for Business Economics,” The Board of Governors of the Federal Reserve System, September 30, 2024}

PERSONAL FINANCE

Staying Safe in the Age of Identity Theft

In today's digital world, identity theft has become a growing concern for individuals and businesses alike, particularly as more of our personal information is stored and shared online. Protecting your identity is critical to avoid the potential for financial loss and prevent long-term issues that can hurt your credit, reputation, and even your employment. Staying vigilant and adopting key protective measures is essential to keeping your information safe.

Here are a few simple steps you can take to help safeguard your identity:

Use Strong Passwords – Make sure your passwords are long (sixteen or more characters, if possible) and unique for every account. Avoid common phrases or easily guessed information like birthdays. Use a password manager to keep track of them.
Enable Two-Factor Authentication (2FA) – This adds an extra layer of security. Even if someone gets your password, they won’t be able to access your account without the second factor, which could be a code generated by an app or sent to your phone or email.
Monitor Your Accounts Regularly – Keep an eye on your bank statements, credit card activity, and credit report for any unusual transactions or changes. Early detection can help prevent further damage.
Consider Freezing Your Credit – You may want to contact the three major credit bureaus (Equifax, Transunion, and Experian) to place a security freeze on your credit files. When you place a freeze, creditors cannot access your credit report. This will keep them from approving any new credit account in your name, whether it is fraudulent or legitimate.
Shred Personal Documents – When disposing of sensitive paperwork, always shred documents that contain personal information, such as account numbers or Social Security numbers.
Beware of Phishing Scams – Be cautious about clicking on links in unsolicited emails or texts, especially those asking for personal information. Verify the source before responding.

Our team is available to assist you in the fight against identity theft. We have implemented safeguards, technologies, and staff training to further this mission. Identity theft is a serious issue, but with proactive measures, you can greatly reduce your risk. You’re not alone in this; please reach out to our team if you would like help.

FIRM UPDATES

NEW TEAM MEMBERS: Charlie Dill and Sebastian Lemm

We are delighted to welcome two new team members to our Denver office.

As Associate, Client Services, Charlie Dill works closely with Obermeyer Wood’s relationship managers to support onboarding for new relationships and meet clients’ financial needs. Charlie previously managed client relationships while working as a senior account executive for a live music talent booking company. He graduated from Miami University of Ohio with a bachelor’s degree in cognitive psychology.

As Associate, Trading & Portfolio Administration, Sebastian Lemm plays a key role in the firm’s trading and portfolio administration operations. Before joining Obermeyer, he was an analyst in the healthcare and telecommunications industries. He holds a master’s degree in data science from the University of Denver and a bachelor’s in economics from the University of Colorado at Boulder, where he also minored in political science.

PROMOTIONS AND DESIGNATIONS

We are delighted to announce the well-deserved promotions of four outstanding team members. Their dedication, hard work, and embodiment of our core values are commendable and inspirational:

Brian Brady, CFP® Vice President, Client Advisory and Communications: Brian’s genuine and humble approach to his expanding role makes him an incredible team member and a talented adviser. He demonstrates a steadfast commitment to his work, a genuine desire to learn and grow, and a deep respect for his colleagues and clients.
Brooke Gais, CFP® Vice President, Client Advisory: Brooke's unwavering dedication and resilience are instrumental to her success. Brooke has a special ability to connect deeply with team members and clients, while her care and attention to detail make her invaluable.
Nick Barnes, Director, Investments: Nick’s intellect, paired with his strong work ethic and collaborative spirit, embodies the attributes we strive for on our investment team. His ability to think outside the box and find thoughtful, intentional solutions is invaluable to our team members and clients.
Anna Buckley, Senior Associate, Client Service: Anna’s unwavering dedication, compassionate heart, and genuine desire to help others are vital to the team and our clients. Anna is a model team player, builds strong client relationships, and creates a positive and productive work environment.

Obermeyer Deepens Financial Planning Acumen

We are also delighted to announce that Brian Brady and Client Advisor Hayden Porter have become CERTIFIED FINANCIAL PLANNER™ professionals upon passing the July 2024 exam and fulfilling the necessary experience requirements. Separately, Client Advisor Kimbo Brown-Schirato earned her Wealth Management Certified Professional (WMCP) accreditation this June. These designations are held in high regard in our industry and will directly benefit the services we offer to our clients.

AWARDS

Our team was recently honored in two national industry rankings:

Barron’s named Obermeyer as one of the nation’s Top 100 Independent Advisors in 2024. This is Wally’s 17th appearance on the list and represents our entire team’s collective work on behalf of our clients.
The Forbes/SHOOK 2024 Top Next-Gen Advisors Best-In-State ranking includes 1,621 professionals under age 40. Brooke Gais and Brian Brady were ranked No. 1 and 2, respectively, in the state of Colorado’s list of 30 “up-and-comers” in the field of wealth management.

Please visit our website for more information and important disclosures about third-party rankings and their methodologies.

Marketpoint: Volatility, Resilience, and a Fed in Easing Mode

1) “Magnificent 7 Stocks Shed $653 Billion in Market Cap Today,” Barron’s, August 5, 20242) Bloomberg Data3) “Chair Powell Remarks at the National Association for Business Economics,” The Board of Governors of the Federal Reserve System, September 30, 2024

PERSONAL FINANCE

RECOMMENDED READING

FIRM UPDATES

_{1) “Magnificent 7 Stocks Shed $653 Billion in Market Cap Today,” Barron’s, August 5, 2024}
_{2) Bloomberg Data}
_{3) “Chair Powell Remarks at the National Association for Business Economics,” The Board of Governors of the Federal Reserve System, September 30, 2024}