MARKET UPDATE SEPTEMBER 2024

Market volatility has continued since all-time highs were reached in mid-July.

Stock prices dropped a lot in late July and early August.  The Nasdaq dropped about 16% and the S&P 500 dropped about 8%.

Stock prices rebounded strongly in August.  Both the S&P and the Nasdaq climbed roughly 10% in the first three weeks of August.

In the last two weeks the Nasdaq has fallen about 7% and the S&P 500 has dropped about 3.5%.

This is very erratic and unusual behavior.  It points to market instability.  This is not a healthy market.

One good inflation report sends the market higher and one bad employment report sends the market lower.  The inflation and recession dance continues, and it will likely take many more months before there is any clarity on both of these major economic issues.     

Markets are always faced with uncertainty, but the current moment represents a highly uncertain time. In addition to the inflation and recession fears, the markets are dealing with:

·      A slowdown in economic activity in China and what that might mean for the US economy.

·      The looming November elections.

·      A rate cutting cycle from the Fed beginning next week and lasting six months or so.

·      The AI revolution and its impact on corporate profits.

We don’t usually put too much emphasis on big macroeconomic issues for our investing, but when they cause this much volatility in stock prices, we tend to get more conservative. 

Our own market valuation models indicate that the S&P 500 is still about 10% overvalued right now.  A plus 10% reading is not excessive, but we prefer undervalued markets. 

The trailing 5-year, 10-year and 15-year average annual returns for the S&P 500 are also significantly above average.  15-year returns for the S&P 500 are roughly 40% above the average of the last 100 years.  This represents a pretty long time for above average gains.  Markets have a way of reverting back to the mean.

The risk/reward meter is tilting toward risk right now.  We do not believe that this is a good time to be overly aggressive in your investing. 

Stay Disciplined My Friends,

Phil McAvoy

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