Overcoming uncertainty: Financial markets soared in Q3

The third quarter began with heightened volatility, as markets grappled with concerns over weakening economic data, disappointing corporate earnings, and fears of an overheated technology sector. Anxiety over a potential U.S. recession also loomed large.

As the quarter progressed, though, markets turned up, driven by stronger-than-expected labor market data and easing inflation. This led to growing optimism that the Federal Reserve might pivot toward more aggressive rate cuts (which they executed before quarter’s end), shifting its focus to supporting the economy.

As a result, stocks rallied sharply through the end of the quarter while the bond market, buoyed by declining rate expectations, posted its second-best quarterly performance in two decades. The quarter was marked by gains in virtually every investment sector and strategy.

Stocks

Sector rotation was a key theme in Q3 as technology stocks, long viewed as overvalued, faced headwinds. By contrast, sectors sensitive to interest rates, such as real estate and financials, outperformed, benefiting from the anticipated rate cuts. Small-cap and value stocks, often overlooked in the shadow of larger growth companies, also saw impressive gains.

Overall, stocks maintained their strong momentum from the year’s first half. Westmount’s stock portfolio rose by +6.41%¹ for the quarter, aligning closely—as intended—with the global stock market’s +6.61% gain. Year-to-date, Westmount’s client stock portfolio, designed for low-cost, tax-efficient, and diversified market-tracking exposure, has slightly outpaced the MSCI All Country World Index, up +18.90%¹ compared to the Index’s +18.66%.

Alternatives

Westmount’s Alternatives—Income portfolio, focused on private credit for the past four years, continued to deliver strong and consistent returns. Private credit, backed by tangible corporate and real estate assets, offers higher yields than traditional bonds, providing steady cash flow.

In Q3, the portfolio was up +2.91%¹, outperforming the Wilshire Liquid Alternative Total Return Index, which rose +2.56%. Year-to-date, the Alternatives—Income portfolio has returned +8.11%¹ with minimal volatility compared to the Wilshire Index’s +6.32%.

The newest addition to our clients’ overall portfolios, the Alternatives—Growth section, primarily consists of the Cascade Private Capital Fund. This fund provides exposure to secondary private equity (buying shares in private companies at discounted valuations) and co-investments (direct ownership in companies with minimal fees).

As one of only a handful of seed investors in the fund, we secured highly favorable fee terms for our clients, contributing positively to already exceptional early returns. Since making this investment in late March, the fund has gained a whopping +22.44%.

Bonds

The Federal Reserve dominated Q3 headlines as it weighed the economy’s strength against the backdrop of moderating inflation. With inflation now largely under control and economic indicators remaining solid, the Fed cut short-term interest rates by 0.50% in September to support economic growth and improve the chances of a “soft landing.” This reduction in interest rates was a boon for bondholders, as bond prices typically rise when rates fall.

Westmount’s bond portfolio delivered a strong return of +3.55%¹ for the quarter, slightly trailing the broader bond market’s +5.20% gain. Year-to-date, Westmount bonds have continued their trend of outperformance, up +5.01%¹ ahead of the broader bond market, which is up +4.45%.

This outperformance has also been achieved with less volatility this year (and for the last few years). This is attributable to our bond portfolios being structured to carry less interest rate risk (the risk of falling bond prices when interest rates rise), even if that results in lower returns when the bond market rallies (such as when interest rates fall).