MARKET UPDATE AUGUST 2024

After reaching an all-time high on July 16th, the stock market has declined fairly quickly.  The chart of the S&P 500 below clearly shows the reversal in the last two weeks. 

The S&P 500 has dropped almost 9% from its peak and the Nasdaq has fallen almost 14% since its July peak.  As of Monday, the S&P 500 was still up about 9% for the year. 

It is important not to panic at times like this.  These moves are quite normal for the stock market.  Market drops of over 5% in a given year happen 94% of the time.  Market drops of over 10% in a given year happen 64% of the time.   

We would all like to know if this is a minor short-term correction or if this is the start of a bigger move to the downside.  No one knows for sure but the good news is that you are already protected from the worst case if you are one of our Market Signals customers. 

Let’s examine the factors behind this recent decline. 

1. Recession Fears – The market did not like the negative surprises last week for the manufacturing index and the jobs report.  We seem to have quickly moved from inflationary fears to recession fears.  And we know that the stock market overreacts to both good news and bad news. The economy is clearly slowing down, and it has been for a while.  This was to be expected with the Fed interest rate increases.  The Fed appears to be poised to cut interest rates in the near term and the concern would be that the Fed is too late again.  If economic and market data continue to be soft, expect the Fed to lower interest rates sooner rather than later.

2. Japan – The Japanese stock market has fallen by roughly 20% after the Japanese government raised interest rates.  This may have contributed to the selling, but the American economy should be able to get past any short-term bumps in the much smaller Japanese economy.

As I have previously written, the odds of the Fed achieving a soft landing were very low to begin with. It has never been done before.  A soft landing is still a possibility, however, albeit a small one.

Stay Disciplined My Friends,

Phil McAvoy

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