**Market Trends and Insights: Q3 Review**
The third quarter of the year saw a significant upswing in equity markets, driven by signs of cooling inflation and the Federal Reserve’s aggressive rate-cutting cycle. Smaller capitalization companies led the charge, with the Russell 2000 Index surging 9.27% and the Russell Midcap Index advancing 9.21%. Value shares outperformed growth shares, with the Russell Midcap Value Index rising 10.08%.
Despite some volatility sparked by weak employment reports and a rise in the unemployment rate, the Fed’s rate cuts created easier financial conditions for consumers and small and medium-sized businesses. This, combined with an increasing likelihood of an economic soft landing, bodes well for the future.
In the midst of this market rally, our ClearBridge Growth Strategy underperformed its benchmark, the Russell Midcap Growth Index. However, we remain confident in our approach, which focuses on smaller capitalization companies with strong growth potential.
Some of our holdings faced challenges during the quarter, including CrowdStrike, which experienced a software content update issue, and e.l.f. Beauty, which saw weaker-than-expected channel data for the beauty category. However, we believe these companies have the potential to rebound and continue growing in the long term.
Meanwhile, our portfolio’s diversification efforts paid off, with strong performances from builders FirstSource, Cintas, and Starbucks. We also exited some positions, including Wolfspeed and ETSY, due to concerns about their growth prospects.
Looking ahead, we believe the current market environment favors smaller capitalization companies, which tend to benefit from declining interest rates and easier financial conditions. We’re also seeing opportunities in the financials sector, where we’ve added new positions in Ares Management and MSCI.
As always, we remain focused on our long-term investment approach, which emphasizes careful stock selection and a disciplined portfolio construction process. We’re confident that our strategy will continue to deliver strong returns for our investors over time.
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