BY STRATEGIC ADVISERS INVESTMENT TEAM — AUGUST, 2024
Market Conditions
We believe the U.S. economy continues to expand. While volatility during this phase of the business cycle is normal, we empathize with investors who feel shaken by recent market events. However, historically, stocks and bonds have risen as the U.S. economy expands, even as bouts of volatility have been common.
- Unemployment rose to 4.3%, but is still near historic lows.1 The job market remains a source of strength for consumers and the economy.
- During Q2 2024, U.S. corporate profits likely grew about 8%2 and the outlook for corporate profit growth continues to remain healthy for 2024.3
- Consumer spending remains positive, service industries are doing well, and inflation has moderated considerably, all positives for the economy.4
- Inflation is now slightly below 3%, close to the 100-year average of the U.S. consumer price index.5
- At the most recent meeting, the Fed, once again, held rates steady. However, in his post-meeting statement, Chairman Jerome Powell conveyed stronger signals for a rate cut at the Fed’s next meeting on September 18th.6 Lower interest rates may support stock and bond prices.
What it may mean for your portfolio
Stocks experienced some volatility in early August, which may have felt jarring to some investors after many months of steady gains. Softer economic data points on unemployment and manufacturing led to some uncertainty on the outlook for U.S. economic growth. As for earnings, they likely grew at a healthy pace in the second quarter. But some investors were surprised by the costs of AI investment for some large growth companies, leading to volatility in some of these stocks, which had experienced strong gains this year.
Thankfully, markets recovered from most of their dip soon after it began as most of the U.S. economy was experiencing growth. While unemployment did tick higher, it was still near historic lows. Even as manufacturing weakened, most services industries (such as financial services, retail, etc.) were still expanding and the outlook for earnings growth remained positive for the rest of 2024. We believe that this backdrop is likely to support further economic growth in the U.S., which may lead to rising stock prices over time.
As to the recent bout of market volatility, we believe it was an example of relatively common market volatility that can occur several times a year. Since 1980, the S&P 500® has experienced a decline of -14% on average in any given calendar year. In most of those years, the economy continued to grow, and markets went on to experience gains. Based on this history, market declines of -5%, -10% or even -20% have not always been a sign that the economy or markets were about to enter a prolonged slump.
It may also be normal for those nearing key goals such as retirement, a new home, or educational expenses to feel particularly anxious when markets drop. However, based on our experience, investors who have worked with an advisor to develop a financial plan and understand how they are invested are much more confident in their ability to reach their financial goals.
Investing in a diversified portfolio of stocks, bonds, and other investments, can potentially help to manage volatility compared to investing solely in stocks. Bonds and other diversifiers may retain or even gain in value when stocks may be experiencing volatility, which is what happened during the bout of volatility in August. Diversified portfolios may help investors reach their financial goals by generally growing at a faster pace than investing solely in short-term investments, while typically experiencing less volatility than the stock market.
Outlook
We will continue to closely research and analyze the current position of the U.S. economy within the business cycle. As the need arises, we will seek to review and adjust the level of risk within client accounts. Just as importantly, we will seek out potential long-term growth opportunities when the U.S. economy is expanding. We believe these actions may help deliver strong risk-adjusted returns for our clients.
Make a plan, stick with it, and stay invested
Market conditions can change quickly. Historically, the market has sometimes rallied, even as news headlines may have felt discouraging. We want clients to benefit from market rallies, like the one that has taken place over the last several months. As a result, we have maintained healthy exposure to stocks, even through bouts of market volatility. We believe that staying invested during all types of market conditions can ultimately help you reach your financial goals over the long term.
