Q2 in Review and Q3 2024 Market Outlook

Stock and bond markets got off to a rough start in the second quarter of 2024, with the prospect of the Federal Reserve cutting interest rates dim against a backdrop of stubbornly high inflation.

However, in the final days of the quarter, the outlook had brightened somewhat, as inflation news turned favorable enough that investors are more confident that the Fed will move lower rates in September.

Within the stock market, a key trend continued from 2023 and the previous quarter: the strong performance of stocks benefiting from AI-related products.

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

Q2 2024 Market Performance and Economy

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

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

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

Stock Performance and Sector Forecasts Q2 2024

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

Q2 2024 mutual fund performance and key picks

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

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

Here’s a look at Morningstar’s outlook for second-quarter performance for mutual funds and exchange-traded funds.