Q2 In Review and Q3 2024 Market Outlook

The stock and bond markets got off to a rough start in the second quarter of 2024, with the outlook dimming for Federal Reserve interest rate cuts against a backdrop of stubbornly high inflation.

However, by the final days of the quarter, the outlooks had brightened somewhat, as inflation news turned favorable enough that investors are more certain the Fed will be moving to lower rates in September.

Within the stock market, one key trend continued from 2023 and the previous quarter: the strong performance of stocks benefiting from products tied to artificial intelligence.

As the third quarter of 2024 gets underway, what’s the outlook for the stock and bond markets? What stock sectors are most attractive? What should investors do from here? We’ve gathered insights and perspectives from analysts and specialists about market performance, individual stocks, sectors, and mutual funds.

Q2 2024 Market Performance and the Economy

Investors went into the second quarter nervous about the inflation outlook. Markets had already pared back their expectations to three Fed rate cuts from five at the start of the year. A series of hotter-than-expected inflation readings in April sent stocks and bonds lower. In May, the weight on both markets began to lift as the outlook for inflation again started to look more favorable. Even as the Fed signaled in June that officials now only expect one rate cut this year, stocks and bonds regained their footing.

A key question now facing investors is whether the improved inflation news will continue, allowing the Fed to start cutting rates in September, as markets now expect. At the same time, can the economy continue its moderate growth pace, or will a slowdown raise the risk of recession?

Here is our look at the big market and economic trends from the second quarter of 2024, along with our market outlook for the third quarter and beyond:

Q2 2024 Stock Performance and Sector Outlooks

Which stocks performed best in the quarter? Which lagged? Which sectors and stocks should long-term investors be looking to buy now Here we take a deeper dive into how both sectors and individual stocks performed during the quarter, along with the third-quarter outlook and top stock picks from Morningstar’s stock analysts.

Q2 2024 Mutual Fund Performance and Top Picks

For mutual fund investors, the quarter was a mixed picture. Funds focused on growth stocks continued to lead returns, especially those hunting for large-company stocks. However, small stock funds and value funds lagged, and in many cases, they posted losses for the quarter.

It was a similarly mixed picture among bond funds. Strategies with greater exposure to interest rates lagged, while funds focused on credit markets, such as bank loans and high-yield bonds, gained.

Here’s a look at Morningstar’s take on the second quarter performance for funds and exchange-traded funds.