HWM Market Recap - August 2024
|
Surely, you have seen in the news recently that the stock market has tumbled a bit over the last few weeks. At the end of the trading day Monday, August 5th, 2024:
The S&P 500 is down 8.49% from its all-time high on July 16th,
The Dow Jones Industrial Average is down 5.50% from its all-time high on July 17th, and
The Nasdaq composite is down 13.12% from its all-time high on July 10th.
It's a lot like watching your favorite sports team fumbling a lead at the end of a game – painful but part of the sport. Yes, the stock market has taken a dip from its all-time highs, and it's natural to feel a bit anxious when you see headlines like we did on Monday:
$6.4 Trillion Stock Wipeout Has Traders Fearing 'Great Unwind' Is Just Starting – Bloomberg
Wall Street suffers worst day in nearly two years after global sell-off – The Guardian
But before anyone goes burying cash in the backyard, let's take a moment to breathe and talk it through.
So, what's going on? It's difficult to point to one specific thing causing this downturn, but several particular items are being discussed. Last Friday, the Department of Labor reported that job growth for the month was lower than expected, and unemployment rose to its highest level since October 2021. Moreover, there are growing concerns that the Federal Reserve is behind in cutting interest rates, leaving interest rates too high for too long, thus reigniting the conversation of whether we are headed for a hard landing (i.e., a recession). From a global markets perspective, the Japanese stock market had its worst drop Monday since 1987, tensions are rising in the Middle East, and there is still an ongoing war in Europe.
But what does this mean in the grand scheme of things? Every year, it is a near certainty that markets will decline to some degree. In fact, a decline in the S&P 500 of 5% or more has occurred in 94% of the years between 1928 and 2023. In the same timeframe, the stock market had down years of 10% and 15% around half the time (64% and 40%, respectively) – downtrends of 10-20% are referred to as 'corrections.' Lastly, 20% or more downturns, also referred to as 'bear markets,' occurred only 26% of the time. And the odds only get smaller for even larger downtrends.
Additionally, between 1950 and 2021, the stock market experienced 36 occurrences where it declined by 10% or more, ten where it dropped by 20% or more, and six where it decreased by 30% or more. Put another way, the S&P 500 has had:
A 10%+ decline about once every two years,
A 20%+ decline about once every seven years, and
A 30%+ decline about once every twelve years.
These are not iron-clad rules, but they give you a sense of the frequency with which market declines occur.
Nevertheless, all data points to the fact that, while stock returns can be volatile, bull markets outshine bear markets. One way to look at this is to look at a chart of the stock market's history – it moves from the lower left corner to the upper right. To flesh that out further:
Between 1926 and 2023, the S&P 500 experienced 18 bear markets – a decrease of at least 20% from a previous peak. These bear market decreases ranged from -21% to -80% across an average length of 10 months.
Meanwhile, there were 19 bull markets during that time – at least 20% increases from a market trough. These averaged 52 months, and increases ranged from 21% to 936%.
Source: S&P data © 2024 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Chart designed by Dimensional Fund Advisors LP.
Therefore, when you look at these numbers side-by-side, it's clear that the stock market rewards disciplined investors.
It is yet to be determined how long this downtrend will last. If it means anything, bear markets and crashes are statistically rare. If history can give us any indication, keeping in mind that past performance is not an indication of future returns, there is a higher probability that this is a more regular correction. However, markets do not always act rationally in the short term. We will continue to keep a close eye on what is happening and keep you updated as events unfold.
These findings are not meant to diminish how you may be feeling. On the contrary, it is never fun to look at your investment portfolio and see red – we know that as well as anyone. The biggest mistake investors make to their portfolios when stocks go down is panic. This is why it's so important to have a plan for investing that outlines your time horizon (the amount of time between now and when you'll need to withdraw from your investments), your risk tolerance, and your goals. In doing so, you can strike a balance between the amount of stocks, bonds, and cash in your portfolio that aligns with those factors. The beauty of this strategy is that regardless of which direction stocks move, you've thought it through and have a long-term plan that accounts for those market fluctuations.
If you are stressed about what is happening in the stock market right now, there is a better and more sensible way to invest – have a plan, stick to it, and don't 'wing it' when things go awry. If you find yourself thinking about changing your allocation (like selling out of stocks when markets go down), you should think carefully about whether you are doing so because your long-term plan has changed or simply because of short-term market movements.
Trying to time short-term moves is not long-term investing because no one can consistently and accurately forecast the stock market's direction in the short term. If you can think of investing in terms of decades rather than days, weeks, months, or even a year or two, you put yourself in the best position to capture the power of compounding in your investment portfolio.
|
Monthly Changes in Indices
| Year-to-Date Changes in Indices
|
Monthly Performance By Sector
| Year-to-Date Sector Performance
|
|
The Consumer Price Index (CPI) declined 0.1% on a month-over-month basis in June. On an annualized basis, the CPI increased by 3%. The Core CPI (which excludes food and energy) rose 0.1% in June and is up 3.3% from twelve months prior. A different measure of inflation, the Core Personal Consumption Expenditures Price Index (PCE) (the Fed's preferred measure of inflation), remained at 2.6% annualized.
The U.S. Bureau of Labor Statistics’s Employment Situation Summary for July showed that the U.S. added 114,000 new jobs, fewer than the 179,000 in the previous month. This is the second-lowest jobs report since December 2020. Additionally, the unemployment rate rose 4.3%, its highest since October 2021.
The June Job Openings and Labor Turnover Summary (JOLTS) showed that job openings had remained unchanged since May. The report also revealed that the number of hires and total separations changed little.
According to the University of Michigan’s Index of Consumer Sentiment for July, sentiment decreased a “statistically insignificant” amount. Year-ahead inflation expectations declined for the second month in a row to 2.9%. Long-run inflation expectations came in at 3.0%, unchanged from the month prior and holding stable over the last three years.
The National Association of Realtors reported that June’s pending home sales rose 4.8% from the previous month. However, an annualized reading shows that pending home sales declined compared to June 2022. Existing home sales in June were down 5.4% from the previous month and were down the same amount on an annual basis. Meanwhile, the median sales price climbed to its highest price ever recorded of $426,900 – the second consecutive month where it reached an all-time high. Also, the Census Bureau reported that new home sales for June also fell 0.6% on a monthly basis. On an annual basis, new home sales were down 7.4% – its lowest level of this year. The average sales price for new homes is $487,200.
If you liked this post, please share it with someone who might benefit from it, and let us know if you have any comments or questions!
About the Author
Holzberg Wealth Management is a family-owned and operated financial planning and investment management firm based in Marin County, CA. As your financial advisors, we serve you as a fiduciary and are fee-only, so we never receive commissions of any kind. We help individuals and families like you in the greater San Francisco Bay Area and virtually nationwide with the financial decision-making process to organize, grow, and protect your assets.
** This writing is for informational purposes only. The author and Holzberg Wealth Management do not guarantee or otherwise promise any results that may be obtained from using this report. No reader should make any investment decision without first consulting their financial advisor and conducting their own research and due diligence. These commentaries, analyses, opinions, and recommendations represent the personal and subjective views of the author and do not constitute a recommendation, offer, or solicitation to make any securities transaction. The information provided in this report is obtained from sources that the author believes to be reliable. External links to third parties are being provided for informational purposes only. Holzberg Wealth Management is not affiliated with the third-party websites linked to, unless otherwise explicitly stated, and does not constitute an endorsement or approval by Holzberg Wealth Management of any of the third party’s products, services, or opinions. Past performance is not a guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Any charts and graphs provided are hypothetical and for illustrative purposes only, are not indicative of any investment, and assume reinvestment of income and no transaction costs or taxes.
Comments