Third Quarter Market Recap: Navigating Volatility and Tech-Driven Rallies
The third quarter of 2024 was anything but boring, with markets experiencing both soaring highs and sharp drops. Investors on both sides of the border navigated lower interest rates, slowing inflation, mixed economic data, strong earnings reports, and global stimulus efforts—all fueling heightened volatility, particularly in the US.
At one point, markets tumbled 8.5%, flirting with correction territory (a correction occurs when an index or stock drops 10% or more from its recent peak). However, the storm passed quickly, and markets regained their footing, finishing the quarter on a high note. All four major indexes moved higher by the end of September, with the S&P 500 (S&P) and Nasdaq Composite Index (Nasdaq) logging their fourth straight quarter of gains, even hitting new all-time highs. Leading the charge was the Dow Jones Industrial Average (DJIA), which surged 8.2% and set multiple records. The roller-coaster ride sent the volatility index (VIX) to its highest level since 2020, adding some extra drama to the quarter.
In Canada, the Toronto Stock Exchange Composite Index (TSX) mirrored this strength, setting record-high closings three times, bolstered by rising commodity prices and sustained positive sentiment in the Canadian market.
In the end, the third quarter turned out to be a strong one for the markets, leaving investors with plenty of optimism as we head into what could be an equally unpredictable final quarter of the year. Let’s dive into the key highlights of the third quarter of 2024 and see how the portfolios performed.
Third Quarter Portfolio Update
Third Quarter Review
For the third quarter, the TSX (SPTSX) jumped 9.7%, the S&P (SPX) grew by 5.5%, the DJIA (INDU) surged 8.2% while the Nasdaq (CCMP) advanced 2.6%.
The third quarter of 2024 took investors on a wild ride, with sharp ups and downs before ending on a high note. As the quarterly progress chart shows, the TSX claimed the top spot, while the DJIA led the American indexes.
The quarter began with a slowdown in the AI-driven rally, as investors shifted focus to other sectors and smaller companies poised to benefit from expected rate cuts. Then came August, a turbulent month that rattled markets. The S&P plunged 8.5%, and the TSX fell 7.2%, spooked by recession fears, lacklustre US job growth (only 114,000 jobs added), and sharp declines in tech heavyweights like Nvidia (NASD: NVDA) and Apple (NASD: AAPL). A global sell-off added fuel to the fire, with Japan’s Nikkei suffering its steepest one-day drop since 1987 after the Bank of Japan unexpectedly raised rates, triggering global market jitters. Investor nerves were further frayed by the US Federal Reserve (Fed) delaying its much-anticipated rate cuts.
But just as quickly as markets dipped, they rebounded. Strong US economic data, cooling inflation, and hints of rate cuts from the Fed renewed optimism. September delivered a surprise twist, defying its usual tendency to decline. All four major indexes finished in the green, posting record highs, buoyed by the Fed’s bold 0.5% rate cut, and a significant Chinese stimulus package aimed at jumpstarting the world’s second-largest economy.
By quarter’s end, the markets had logged solid gains. The DJIA had its best quarter since 2021, while the TSX enjoyed its strongest performance since 2020. Falling rates, easing inflation, strong corporate earnings, and rising commodity prices reignited investor confidence across North America.
Key Market Drivers
Several factors powered this dynamic and ultimately positive quarter. Softer inflation, supported by weaker employment data, initially brought relief to investors concerned about rising prices. This set the stage for the Fed’s bold 0.5% rate cut aimed at boosting market confidence. However, the sizeable cut raised concerns that the economy might be weaker than anticipated. These fears were eased in September when a hiring rebound helped dispel recession worries.
Corporate earnings also played a crucial role, with 75% of S&P companies beating expectations, providing additional fuel for the rally. Globally, China’s largest stimulus package since 2015 delivered a significant economic boost, lifting equity markets worldwide.
While volatility spiked early in the quarter due to economic uncertainty, it gradually subsided. The combination of lower rates, cooling inflation, and global stimulus efforts helped markets stabilize and close the quarter on a high note.
The Canadian Story
After a sluggish second quarter, the TSX came roaring back with an impressive 9.7% gain—the best in four years. The Bank of Canada took a more supportive stance, cutting rates twice by 0.25% each, bringing its benchmark rate down to 4.25%. These cuts helped cool inflation and refocused efforts on economic growth, boosting investor confidence and easing borrowing costs.
Commodities played a starring role, with steady oil prices and rallies in gold and base metals driven by global conditions and geopolitical tensions. Rising oil prices, in particular, provided a significant tailwind for Canadian energy stocks.
The TSX’s impressive performance also reflected broader global market rebounds. As economies worldwide showed signs of recovery, Canadian equities benefited from renewed investor optimism. Adding to the momentum, the Fed’s rate cuts in the US further bolstered confidence, sparking a powerful rally north of the border.
Third Quarter Portfolio Update
The line chart below highlights how each portfolio performed throughout the third quarter of 2024, capturing their overall progress. Following this, you will find a detailed summary of each portfolio’s journey, paired with a bar chart displaying their individual monthly performance.
Portfolio 1 for the third quarter: DOWN 
Portfolio 1 experienced a true rollercoaster in the third quarter, starting with two losing months before staging a September comeback. A rotation away from heavyweight technology companies—long the portfolio’s backbone—hurt performance as investors gravitated toward other sectors and small-cap stocks. July was particularly rough, with a 40% drop in CrowdStrike (NASD: CRWD) after their flawed software update caused a global IT shutdown. ☹
August did not offer much relief. Nvidia, a key holding, faced volatility, dragging the portfolio lower despite a mid-month rally. A sharp 7% dip in Nvidia’s stock during the final week erased earlier gains, leaving the portfolio in the red.
Thankfully, September brought a much needed rebound. The month began with a 7.1% dip but recovered steadily with weekly gains, led by Nvidia’s turnaround. By month’s end, Nvidia helped push the portfolio back into positive territory for September, even though other holdings continued to lag.
Despite the September rally, the portfolio ended the third quarter in the red, with tech stocks driving both the losses and the late recovery. On the bright side, I made strides in streamlining the portfolio, trimming two holdings to make it more manageable going forward.
Activity:
Bought: Kelly Partners Group Holdings
Bought additional share in: Costco Wholesale, CrowdStrike Holdings, Inc.
Sold: Unity Software, Nano-X Imaging, GDI Integrated Facility Services
Portfolio 2 for the third quarter: UP 
Portfolio 2 had a great third quarter, proving to be a steady performer throughout the third quarter, highlighting the strength of its diversified approach. July set the tone as it emerged as the top performer among the three portfolios, with consistent weekly gains driven by standout performances from Microsoft (NASD: MSFT) and MongoDB (NASD: MDB). A five-week winning streak was fueled by broad-based gains across most holdings.
August continued the momentum, with Portfolio 2 defying a challenging market to deliver a monthly gain. Despite declines in two of the four weeks, strong performances during the other weeks offset the losses, helping it outperform both the other portfolios and all four major indexes. Its
balanced strategy paid off, keeping volatility in check while capitalizing on key opportunities.
September brought more turbulence, but Portfolio 2 navigated it well. Gains in the second and third weeks offset early and late losses, with Hammond Power Solutions (TSE: HPS.A) adding a touch of drama as its share price swung sharply during the first three weeks.
In a quarter marked by market volatility, Portfolio 2’s diversification and balance helped it remain resilient and deliver a strong showing. 😊
Activity:
Bought: Whitecap Resources, Birkenstock Holding PLC.
Portfolio 3 for the third quarter: UP
Portfolio 3 held its ground well during the third quarter, staying just behind Portfolio 2 in overall performance. July started off rocky, with early gains quickly offset by back-to-back weekly losses. However, the portfolio showed resilience, with most holdings posting positive returns and resulting in a small gain for the month.
August continued the winning ways, with the portfolio achieving gains in three out of four weeks. Several holdings stood out, with a few delivering impressive returns of over 10%. But it was the steady performance of the majority of stocks that helped propel the portfolio forward, demonstrating its overall strength.
September, however, was the real highlight. Portfolio 3 emerged as the strongest performer, not just among my portfolios but across all indexes. While the first week started with a dip, it quickly turned the tide, posting steady weekly gains for the rest of the month. Lithium Americas (TSE: LAC) and its Argentina counterpart (TSE: LAAC) were standout contributors, with wild fluctuations that ultimately added to the portfolio’s success.
By the end of the third quarter, Portfolio 3 highlighted its strength, closing the quarter on a high note and demonstrating the power of a diverse mix of holdings.
Activity:
Bought: Vertiv Holdings
Sold: GDI Integrated Facility Services
Nine Month Review in Charts
They say a picture is worth a thousand words, but when it comes to market trends, a well-crafted graph can be worth even more. Instead of revisiting what has already been covered, I will let the visuals do the talking. The graphs below capture the journey of each index and portfolio, painting a vivid picture of how the markets evolved over the first nine months of 2024.
The first chart displays the rollercoaster ride of the major indexes, each surging to impressive gains by the end of the third quarter. Leading the charge, the Nasdaq (CCMP) soared 21.2%, with the S&P (SPX) hot on its heels, up 20.8%. The TSX (SPTSX) was the real comeback story, leaping from a modest 4.4% gain at the end of the second quarter to an impressive 14.5% year-to-date by the close of the third quarter. Even the DJIA (INDU), though trailing its peers, held its ground with a solid 12.3% gain over the period.
Up next is a line chart that tracks how the three portfolios have grown month by month over the first nine months of the year, displaying their percentage gains along the way.
Here is the final chart, highlighting how the three portfolios stacked up against the four major North American indexes after the first nine months of 2024. Portfolio 1 didn’t just lead the portfolios – it nearly doubled the performance of the Nasdaq, the best-performing index. 😊
Looking Forward
With September’s impressive performance setting a positive tone, there is plenty to be optimistic about as we enter the final quarter of 2024. Historically, the S&P has closed higher 79% of the time in the fourth quarter, with an average gain of 5.1%—a trend that fuels confidence for a strong year-end rally.
That said, the fourth quarter will not be without its hurdles. Major events loom large, including the US presidential election, central bank rate decisions in both the US and Canada, and third-quarter earnings, with Nvidia taking center stage as the bellwether of the artificial intelligence (AI) rally. Commodities, which soared in the third quarter, may experience a pullback as investors lock in gains. On the inflation front, Canada is expected to hit its 2% target by year-end, while the US may reach that goal next year, as higher interest rates continue to work their way through the economy. South of the border, a ‘soft landing’ appears within reach, with inflation easing without a significant economic slowdown. In Canada, however, the outlook is more cautious, with concerns lingering over consumer confidence, financial vulnerabilities, and ongoing affordability challenges.
As interest rates decline and the AI rally slows, investors may continue shifting away from big, well-known tech companies whose stock prices have soared during their extended winning streak. Instead, they are likely to gravitate toward value stocks—those considered bargains based on their earnings—and smaller companies, often referred to as ‘small caps.’ Defined as having a market cap of less than $2 billion, small caps are well-positioned to thrive in a strengthening economy. They typically benefit from increased demand, cheaper borrowing, adaptability to improving conditions, and significant growth potential. This rotation highlights a broader push for diversification and fresh opportunities as inflation cools and borrowing costs decline.
With a strong finish to the third quarter boosting confidence, the stage is set for a potentially strong close to the year—and even a promising start to 2025. Hopefully, the markets play along and deliver another stellar the fourth quarter. 😊 Fingers crossed for a strong close to 2024! 😊
