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% Tuesday. 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
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. 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.
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.
We are continuously monitoring the situation and will keep you informed of any significant developments. Thank you for your trust and confidence in our firm. We are committed to helping you pursue your financial goals, even in challenging times.
Sources:
1. 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.
2. WSJ.com, August 2, 2024.
3. FRED.StLouisFED.org, 2024.
4. Insight.FactSet.com, July 29, 2024.