Summary: Price action in Q3 2024 was largely driven by falling inflation, rising unemployment, the yen carry trade unwind, and Fed easing. As a result, equity markets were choppy with an upward bias while yields, dollar, and commodity aggregates fell. Gold benefited greatly from this combination of macro factors while bitcoin and other high-risk assets were essentially flat.

Performance: This quarter’s performance was a solid improvement over Q2’s dismal return. Though the portfolio underperformed broader equity baskets and gold, we do not expect underperformance to end the year. The portfolio’s higher risk assets experienced a slight drawdown while larger cap risk assets provided a positive return in excess of losses. Some additional gains were achieved through several levered allocations to large cap assets when markets appeared oversold or panicked. 

Outlook: The portfolio’s allocation to high risk should pay off as the year comes to a close, particularly once election uncertainty is resolved. A Republican sweep will be the most bullish, followed by a Democratic sweep. The implication is that both parties will look to expand spending through legislation, likely preventing a near term recession. If Kamala were to win, her anti free-market policies would place a damper on expectations. Perhaps the worst combination would be a split government. One or both chambers of congress would likely stymie the sitting president from enacting their agenda, thus drying up the deficit spending that has become so entrenched lately. There is an argument to be made that a split government would be better than a democratic sweep if the economy remains resilient. In this case, the lack of government intervention might benefit the economy whereas irresponsible democratic policies like price controls and reckless spending would drive a return of inflation.