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[Market Recap] Cup of Joe: September Market Update

Stock Markets cooled off in August

The August decline seems to be not such a bad thing. Not a good thing, per se, but good in the sense that it may be healthy for the market.  Staving off the proverbial irrational exuberance and keeping expectations in check.

  • The S&P 500 was +20.6% through July 31st.  On pace for a calendar year return of +35.4%. That has happened only 5 times since the Great Depression, and the last time was in 1958. So a year like this would be exceptional.

In our opinion, one good thing about the market repricing in August is that it seemed to happen on its own, it was not caused by any surprise headlines or negative reports.

  • The August cool-off also happened with a very average amount of volatility, average by historical standards.
  • Except for a three-day period right in the middle, the daily moves were mostly in bite sized chunks, which is nice to see.  This is also good for the investing mentality, because it keeps the financial media quiet which prevents either our Fear or FOMO reactions from flashing red.
  • A market moderating itself on its own isn’t always a bad thing because it keeps expectations in check and mitigates the amount of emotional frenzy we experience.

What this August performance could also be signaling is that the Fed is still in the driver’s seat. Market participants were seemingly watching the data roll out and gauging the potential signaling of if-you-give-a-mouse-a-cookie will it end up with the Fed hiking rates more or pausing for a while.

A big positive right now is:

  • Job market has remained strong and the Unemployment rate has remained low.
    Employed workers fuels spending which fuels corporate profits.
    Corporate profits are the main driver of long term stock prices.

Thank you for your continued trust and partnership. 


Joe Gallemore, CIMA®, Partner

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[Market Recap] Cup of Joe: August Market Update

Stock indexes posted strong gains in July. US Large cap and International stocks were up over 3% and US Small Cap and Emerging Market stocks were up more than 6% during the month. Primarily led by the Fed’s pause on interest rates in June, and the continued trickle of positive data on the economy. 

In the first half of the year, performance of the S&P 500, and arguably the market at large, had been dominated by large tech stocks.
Large Growth stocks have been on a white hot tear this year returning over 33% in the first 6 months.This started to turn over a bit in July.The S&P 500 Equally-Weighted Index returned slightly more than the traditional S&P 500 Index in July (3.5% vs 3.2%). This performance shift is a good thing for diversified portfolios because it means that a broader range of stocks performed well, as opposed to a small few.  
 
The “so what” of all this. How does this apply to me?
Not focused on growth or large growth. This, like everything else, goes through cycles. It has been in favor in recent history because of suppressed interest rates. Large Growth was -30%+ in 2022… because interest rates went up, fast.
 
Diversification:
A portfolio of 60% SP 500 & 40% Barclays US Aggregate Bond indexes is +13% year to date. According to JPM, a broadly diversified allocation of about 8 different asset classes is +10.7% YTD as of 7/31.The goal of diversification is not keeping up with a specific equity index.If you’re retired or in the later innings of your career, you’re going to have exposure to bonds, for income and risk control. Bonds are up barley 2% this year because they’ve been going through a rate hiking cycle and inflation (a bond’s worst enemy) was generationally high last year.
 
So,Knowing you have a diversified portfolio…
When you hear, “The NASDAQ is up for 13 straight days!” know they’re not talking about you.  When you hear, “Equities are favored to bonds!”, just think to yourself “well I use bond to control risk in my portfolio, and they’re now paying me more than they have in 20 years.” And when you hear talking heads explaining why pockets of the market are ripe for bursts of performance, just remember that market timing has been all but proven impossible, and pursuing it is a fools errand.
 
Thank you for your continued trust and partnership. 


Joe Gallemore, CIMA®, Partner

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[Market Recap] Cup of Joe: Mid-January Market Update

2022 Recap – There was no shelter from the storm.
S&P 500 ended -18.1%
US Mid Cap, US small cap, International & Emerging market stocks all down -14 to -20%
The US Aggregate Bond Index had its worst calendar year ever.
Bottom line, everything outside commodities and energy stocks experienced significant repricing.
▪ Even cash, which stays stable.  After 7-8% inflation, your dollar today only buys you 92% of what it did a year ago.
A cautionary tale about investing and chasing performance:
▪ The tech sector was down -28.2% in 2022. At the start of the year, 8 or 9 of the Top 10 stocks in the S&P 500 were tech and the weight of that whole sector in the index was 30.5%.
▪ Lets look at the Tech Darlings: Apple, Amazon, Facebook (Meta Platforms), Google, Microsoft, Nvidia & Netflix. The AVERAGE performance of those stocks was -43.4%.  The BEST performer was AAPL at -26.3%.  Neither of these stats include Tesla, which clocked in at -65% last year.
▪ Two lessons to be learned here from the run up in tech and the year it just had:
1 Don’t become over confident.
2 Diversify. Index concentration was a double-edged sword.

Looking Forward – We expect this to be a year of change for inflation, Fed policy, global economy, and hopefully war.
Stick to your investment plan.  If you need a reminder of what that is, ask your advisor!  Stay the course and don’t capitulate!
▪ The stock market is not the economy, and the economy is not the stock market.  And differentiating those two with what you hear on the news can be really tough.
▪ [Historically] The stock market has started its long term recovery weeks or months before the economy bottoms.  The market wants to recover, it just needs to believe that sufficient uncertainty economically and structurally has subsided.

There’s lots of reason for hope…
▪ The Fed has already pulled it out of 5th gear and intends to keep moderating the its pace as long as inflation cooperates.
▪ Unemployment is still very low.
▪ Consumer behavior also has the potential to pull inflation down faster which would likely imply shifts in policy and market sentiment.
▪ Regarding the global economy China, has reversed its Zero-Covid policy with intentions of reigniting its economy… a major plus.
▪ Also, and somewhat counter-intuitively, the fact that it “feels” so bad may not be the worst thing historically.  S&P 500’s 7th worst calendar year, home prices and purchases are way down, inflation has been extremely elevated for a whole year, just to name a few.  This brings to mind the old adage “it’s always darkest before the dawn.”  And if you have any faith in the experience and wisdom of Warren Buffett, “Be greedy when others are fearful, and be fearful when others are greedy“.

But lets be conservative with our expectations… 
▪ External factors at play – Inflation is a wild animal that can surprise out of the blue, and global headlines always have the potential to stunt things.
▪ If you’re trying to play [[this bear market and recession by]] the numbers, since WWII the average recessionary Bear market has lasted about 15 months.  The Dot com market in early 2000s lasted just over 2 years, Great Financial Crisis of 2008 lasted 17 months, Covid crash of 2020 lasted 5 weeks.  In our current edition, the average of 15 months lands us at March 31 of this year.
▪ So we believe the prudent thing is to expect continued market volatility, for at least the first half of this year.  The longer it goes, the greater the odds get that the worst is behind us.

So remember, stick to your plan, control what you can control, tune OUT the noise, and have faith in perseverance.

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[Market Recap] Cup of Joe: Early Dec Market Update

Take a look at last week’s market recap from Joe Gallemore, CIMA® Partner & Director of Investment Management for Argent Bridge Advisors. Watch the video now!

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