PFA Updates

Aug 08, 2024

Hi Friends,

Market news moved from very positive the first half of summer, to rapidly uncomfortable in the last week. We enjoyed new all-time highs for the S&P 500 in mid-July, followed by a very weak start to August. It happens. From a seasonality perspective, August and September are historically two of the weakest months in the stock market. [1] The bad news is the markets are down about 8% from the peak three weeks ago - nearing "correction" territory, which is a 10% or more drop. [2] The good news is when you stretch the view out longer, six of the last seven quarters have been positive in the markets. [3] You have heard us before...don't panic, this soon shall pass.

Our Investment Committee rebalanced all models to their normal ranges in late May. We reduced money market balances and increased stock and long-term bond allocations. We are pleased with the results short term and are happy that our Investment Models are tracking well with their comparative benchmarks. In spite of the recent downturn, we remain hopeful for a strong finish to 2024, which is typical in a presidential election year.

Positive Comments about the Economy and Markets

"Recent data on US inflation shows that the disinflationary process - while imperfect - is picking up steam. While not at the Fed's target, I believe we are at what I consider to be a normal level relative to history". [4]

"Fed Chair Powell is very sensitive to unemployment. The Fed does not want to cause a recession". [5]

"The economy grew by more than expected during the second quarter of this year, according to Bureau of Economic Analysis data, as the US defies years long concerns of a slowdown". [6]

"If you are making investment decisions, it's important to focus on the big picture. Historically, stocks have followed economic growth, and so far, the real economy continues to grow". [7]

"I do think there is the potential for a sell-off at some point in the coming months. However, as I've said before, any kind of sell-off would be short lived and represent a buying opportunity". [8]

"Strategists on Friday urged investors to take a cautious approach to a global stock market sell off. Corrections like this are absolutely normal". [9]

"The sell off has likely been fueled by a culmination of factors, such as uncertainty surrounding the presidential election, lingering geo-political tensions and ongoing concerns over a recession. But there are signs the sell off will ultimately be limited". [10]

"The markets rise in the past year, with remarkably few bumps, has been one of the smoothest in decades. Ahead lies a bitterly contested US presidential election, and a rate-cutting cycle, so some increased volatility can be expected. But, no need to put on your life vests". [11]

"Earnings will continue to drive the markets. In the end, investors should believe what they see - not what they hear in the headline news. Overall, the future remains bright for US stocks. I believe the S&P 500 Index could approach 6,000 by the end of the year". [12]

 Concerns about the Economy and Markets

"The unemployment rate rose from 3.7% in January to 4.3% in July, the highest since October 2021". [13]

"Company outlooks are weakening slightly compared to last quarter. It's probably more accurate to state the improvement in the underlying EPS expectations trend that we observed throughout most of 2023 has stalled.  Market bulls are hoping for Fed interest rate cuts to provide an economic boost and restart that improvement". [14]

"The NFIB Small Business Optimism report appears similar to many others this year, with an ongoing concern regarding inflation among small businesses". [15]

"While the rate of inflation for food has come way down, that doesn't mean the cost of food is decreasing. It's just rising a lot more slowly. Food prices have risen more than 25% since January of 2020. So, if your family was spending $200 a week on groceries before the pandemic hit, today you could be spending $250 per week. It's a constant, nagging reminder of inflation". [16]

 Other Interesting Thoughts/Quotes

"For those keeping score, the S&P 500 Index was up 70.2% from the day Donald Trump was elected until the day Joe Biden was elected. Since then, it's up 72.4%. Growth outperformed value under Trump. Growth also outperformed value under Biden. There's not much difference". [17]

"You may have heard we are in a "Vibecession". What is a vibecession? It's the striking disconnect between the state of the US economy, which currently is still strong, and the way people feel about it, which is meh at best. A recent Harris poll conducted by the Guardian, found that about half of Americans think the US is in a recession, that unemployment is at a 50 year high, and that the S&P is down so far this year. None of these things are true". [18]

"Regarding the stock market, the upticks are permanent, and the downticks are temporary". [19]

At times like these it can be best to manage your exposure to financial media, which often sensationalizes market movements. Instead, focus on the long-term strategy we have in place for your investments that considers your goals, time horizon and risk tolerance. And remember, we anticipated there would be periods of volatility. If you're looking for some reading, below is an article from Invesco that helps put downturns such as this in perspective. Keep the faith friends. Let us know if you have any questions about your investments or financial plan.

Be safe and stay healthy.

Your PFA Investment Committee

Invesco Article - Click here and select "Individual Investor" as your role (if prompted)

[1] stockcharts.com  

[2] Forbes.com

[3] Morningstar.com

[4] Invesco.com

[5] Fidelity.com

[6] MSN.com

[7] Fidelity.com

[8] Invesco.com

[9] MSNBC.com

[10] Fundstrat.com

[11] MSN.com

[12] Chaikin.com

[13] connectmedia.com

[14] Earnngsscout.com

[15] Investech.com

[16] Fidelity.com

[17] Invesco.com

[18] Fidelity.com

[19] Nickmurray.com