STEWARDSHIP TODAY FOR MINISTRY TOMORROW
As we reflect on the investment landscape during the final quarter of this year, we are reminded of the integral role that faithful stewardship plays in sustaining and growing ministry. In a time marked by market fluctuations and global uncertainties, maintaining a forward-thinking approach to financial stewardship is more important than ever.
At the Florida United Methodist Foundation, we understand that managing the resources entrusted to us requires more than financial acumen—it requires a vision for the future of Christian ministry. Our goal is not merely to generate returns but to empower the growth of ministries that transform lives and communities.
This quarter, we invite you to join us in considering how intentional planning and investments today can create opportunities for impactful ministry tomorrow. Whether through endowment management, strategic capital investments, or ensuring the financial health of congregations, every dollar invested becomes a seed of hope for future generations.
In this edition of the newsletter, you’ll find updates on market trends, insights from our investment advisors at CapTrust, and practical steps to align your financial resources with your mission. Let us work together to ensure that the ministries we serve are equipped to thrive and share God’s love in a changing world.
Faithful stewardship is a journey, and we are grateful to be your partner on this path.
ECONOMIC OUTLOOK
The Federal Reserve has entered a new era. With inflation near its 2-percent target and economic growth trending upward, early signs of labor market softness came to the forefront. After nine months of anticipation, this was the catalyst the Fed needed to pivot. In September, it began a new chapter, dropping the fed funds rate by 0.5 percent. With monetary policy now in an easing cycle, the economic backdrop should be more favorable to future growth. However, the forward path of policy action remains unsettled.
HEADWINDS
Pace of Cuts Creates Uncertainty
- Although the Fed has entered an easing cycle, the pace and magnitude of rate cuts remain unknown. While expectations vary, monthly economic data points will continue to drive the Fed’s decisions. Faster-than-expected cuts may portend economic weakness while slower-than-expected cuts may signal inflation is still a concern.
Looming Debt-Ceiling and Tax Policy Decisions
- The debt limit suspension expires on January 1, leading Congress back to the negotiating table after November elections. The Treasury has liquidity to deploy in the meantime. Still, these negotiations, plus debates over expiring tax cuts, could create a politically contentious 2025.
TAILWINDS
The Fed Pivot
- With the first rate cut, the economy has transitioned from an extended rate pause to an easing cycle. Fed officials are focused on preserving economic growth while maintaining a strong labor market.
Lower Interest Rates Should Ripple Through the Economy
- Rising rates gradually slow consumer activity, while falling rates can provide immediate relief to consumer spending capacity.
- Lower rates could also provide relief to more speculative, or debt-laden, areas of the equity market while reducing pressure on bank balance sheets.
- Consumers have been hampered by high prices and high interest rates. With rates moving lower, consumers may feel some relief on credit card debt, resume borrowing for larger purchases, or tap into the more than $15 trillion of additional home equity accumulated over the last five years.
FED MOVES ECONOMY INTO A NEW CHAPTER
Shifting market leadership in the third quarter highlighted the sensitivity of economic data leading to the Federal Reserve’s first interest rate cut in September. The Fed messaged the move as proactive, with risks now balanced against a slowing, but overall solid, economic backdrop. Rate reductions are expected to continue at a moderate pace, but economic complexity remains elevated. With the next Fed meeting occurring just after the federal election, the market is likely to be focused, at least temporarily, on the political stage.
Asset class returns are represented by the following indexes: Bloomberg U.S. Aggregate Bond Index (U.S. bonds), S&P 500 Index (U.S. large-cap stocks), Russell 2000® (U.S. small-cap stocks), MSCI EAFE Index (international developed market stocks), MSCI Emerging Market Index (emerging market stocks), Dow Jones U.S. Real Estate Index (real estate), and Bloomberg Commodity Index (commodities).
- U.S. stock markets ascended, with rate-sensitive stocks like utilities and real estate leading the way.
- Bond yields moved considerably lower ahead of a more accommodative Fed policy stance, a solid tailwind for fixed income in the quarter.
- Commodities saw only marginal movement due to softening economic trends. Oil prices declined despite geopolitical tensions. Gold was the standout and one of the best-performing assets amid a falling dollar and strong central bank demand.
- Lower rates and attractive valuations thrust real estate upward, another star of the quarter.
- International markets outperformed the U.S., aided by a weaker dollar, while stimulus efforts in China proved a significant quarter-end tailwind.
FALLING RATES COULD UNLOCK POTENTIAL IN HOME VALUES
While lower interest rates could encourage first-time buyers to enter the market, home prices are near record highs and could remain prohibitive for some time. Home values have appreciated significantly since the beginning of the pandemic, suggesting one or two fed funds rate cuts may not be enough to bring mortgage rates to a level where affordability improves meaningfully.
Existing homeowners, however, have benefited from price appreciation, adding more than $14 trillion in home equity. Having locked in ultra-low rates, these owners are unlikely to sell. Yet, as rates fall, potential value can be unlocked by borrowing against home equity through home-equity lines of credit (HELOCs). This form of borrowing, which has been largely untapped since 2009, could help fund renovations, investments outside the home, or debt consolidation.
Housing is not the only sector that stands to benefit from falling interest rates. A lower-rate environment can reduce variable-rate debt on credit cards and auto loans, opening room in budgets for more consumer spending. Businesses may also step up their capital investments.
Sources: FactSet, Board of Governors of the Federal Reserve System, CAPTRUST research. Data as of 9.30.2024.
FED FOCUSED ON LABOR MARKET
The labor market has been at the center of the Fed’s inflation-fighting focus since unemployment reached a near 50-year low in 2022 due to declining labor force participation (driven in part by stricter immigration policies and pandemic-era retirements). The Fed’s challenge was to squeeze out excess labor demand without a significant increase in unemployment—the employment version of an economic soft landing. Now that the labor market appears to be equalizing, the Fed’s pivot could help ensure slower hiring does not develop into job losses.
- In early 2022, when the Fed began to implement a more restrictive monetary policy, there were 12 million job openings and 6 million unemployed workers. That’s two jobs per unemployed worker. Higher interest rates have since helped to push excess job demand out of the market as businesses have looked for ways to cut costs. Recent data now shows 1.1 jobs for every unemployed worker.
- While rate-cutting cycles generally occur during periods of economic weakness, the Fed’s recent rate cut seems designed to target early signs of labor market weakness, such as slower hiring and slower wage growth. This policy shift indicates the Fed’s resolve to protect jobs and preserve economic growth, which should give consumers added confidence to more fully capture the value of falling interest rates.
Sources: U.S. Bureau of Labor Statistics, CAPTRUST research. Data as of 9.30.2024.