I wanted to take a moment to address the recent market volatility and provide some insights into what is happening and how we are seeing events unfold during this time.
As you may have noticed, global markets have experienced declines recently. Japan's Nikkei 225 index was down over 12% on Monday, and U.S. stocks opened down 4%. The Dow Jones Industrial Average, Nasdaq Composite, and Standard & Poor’s 500 have all seen drops which were driven by a combination of factors:1
- Weak Jobs Report: Last week's disappointing July jobs report from the Labor Department has raised concerns about the strength of the U.S. economy. (Although there’s been some talk that Hurricane Beryl may have influenced the numbers a bit.)2
- Tech Earnings: Recent Q2 corporate reports from major tech companies have disappointed Wall Street.
- Seasonal Trends: Historically, late summer through early fall are challenging months for the market, particularly in Presidential election years.
- Federal Reserve Actions: The Fed's decision at its July meeting to maintain interest rates at their current levels has added to investor anxiety.
- Yield Curve Inversion: The yield curve remains inverted, a phenomenon that often precedes economic slowdowns.3
- Saber Rattling In The Middle East: Iran has recently made it known that a major retaliation is coming to Israel for the assassinations of the leaders of Hezbollah and Hamas.
- Election Fears: The assassination attempt on former President Trump and the sudden change from Biden to Harris as the Democratic nominee have investors wondering who will win the Presidential election and what the direction of our country will be for the next four years.
This is a perfect recipe for the correction of a market that has seen incredible gains since January of 2023.
Despite these challenges, it's important to remember that market corrections are a normal part of investing. (A correction is a decline of at least 10% from a recent high.)
At times like these it can be best to manage your exposure to financial media, which often sensationalizes market movements. During volatile markets, I focus on two things to guide me: The risk temperature of the public and the non-biased research that I subscribe to. Often, I can see a top or a bottom based on the phone calls I receive and the conversations that I have. In extreme times of comfort and complacency along with a higher risk appetite for speculation, I know we are near a top. In extreme times of fear and clients calling with concerns, I know we are near a bottom. It just comes from doing this for twenty seven years. Lastly, I rely on credible sources for both financial news and geo-political news. In my opinion, relying on the biased media is a road map to making bad decisions.
For those of you who have any concerns, we are here for you. In the meantime, here are a few key points to keep in mind:
- Behavior Over Market Movements: Keep your focus during periods of market volatility. Staying disciplined and sticking to your investment strategy is crucial.
- Positive Earnings: The net profit market for the S&P 500 for Q2 2024 is 12.1%, which is stronger than Q1 and above the five-year average.4
- Interest Rates: The market is anticipating a series of interest rate cuts by the Fed, which could start as early as September.
So what are we focusing on in the office?
Aligning clients tolerance for risk, objectives, time horizon and needs (not wants) with their investments. Managing risk is important!
Rebalancing accounts: Rebalancing is simply periodically buying low and selling high. It is a way to manage risk and to make sure that the client's portfolio aligns with their objectives and risk tolerance. It works in both up and down markets and in recent rebalancing, due to the strong market performance the last eighteen months, we are selling equities and buying bonds and alternatives.
Investment selection: Again using our research, we are constantly monitoring investments for valuation, earnings, internal anomalies, etc...
Geo-political events: Wars can shock markets. We currently have two with the middle east and Russia/Ukraine. We may see a civil war soon in Venezuela. I personally monitor this on a daily basis and adjust my risk tolerance accordingly.
Managing client emotions and expectations: This may be one of the most important aspects of my job. Luckily, having a small client base (by design) gives me the time to spend with clients, reviewing their goals, expectations, risk tolerance along with their accounts and overall financial plan. Often after an appointment in volatile times, I hear, "Thanks, I know I will sleep better tonight." That, in my opinion, is one of the benefits we bring to the table for the clients that hire us. Simple peace of mind.
Time will pass and we will make it through this time of volatility just like we have before. If we see that this is more of a long term trend, we will adjust quickly and accordingly. If you or a friend or family member need a review or "second opinion" (for those of you that are not clients), please give the office a call to schedule a meeting. 731-285-0097 M-F 8:30 A - 4:30 P
"The Election And Your Money"
In early July, we hosted a luncheon in Dyersburg titled, "The Election And Your Money." As a result of a huge accolade from one of our attendees, we will be hosting the same presenation in Ripley Tennessee on Thursday, September 26th. If you would like more information or to reserve a spot, please call the office. Seating is very limited and lunch will be provided. With the way things are changing on what seems to be an hour by hour basis, it should be both entertaining and informative.
Until next time, Cheers!
Sources:
- The Dow Jones Industrial Average is an unmanaged index generally considered representative of large-capitalization companies on the U.S. stock market. The S&P 500 Composite Index is an unmanaged index that is considered representative of the overall U.S. stock market. The Nasdaq Composite Index is an unmanaged index that is considered representative of small-capitalization companies. Japan’s Nikkei Index measures 225 stocks and is considered representative of the Japanese equity market. Index performance is not indicative of the past performance of a particular investment. Past performance does not guarantee future results. Individuals cannot invest directly in an index. The return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.
- WSJ.com, August 2, 2024.
- FRED.StLouisFED.org, 2024.
- Insight.FactSet.com, July 29, 2024.
FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm.