It’s hard to believe it’s already August.
Where does the time go?!
We hope you’re enjoying a healthy and relaxing summer.
Photo by Peregrine Photography
Today, we’re discussing:
– Last quarter’s stock market results.
– Factors driving market movements.
– Noticeable slowdown in new jobs.
– Reasons for the early August market correction.
– Potential September interest rate cut.
– Changes we’re making to your portfolio.
Q2 Stock Market Results
The market performed well last quarter.
From January through June, it saw an overall increase of about 15%, with Q2 contributing 4.25% of this growth.
The Magnificent 7 (Apple, Microsoft, Amazon, Nvidia (computer component manufacturer), Tesla, Alphabet (Google) and Meta (Facebook/Instagram/Threads) continue to drive the market’s growth.
However, in the past several days the tech giants are down roughly 20% compared to the overall market.
Why?
Because they’re overvalued.
The other 493 stocks in the S&P 500 are generally performing well. While they haven’t seen the 100%+ gains like the Magnificent 7, their steady performance is a positive sign, reinforcing the benefits of diversification.
Recent Development
A new trend we’re seeing is the sell-off of tech stocks.
Investors are rebalancing by taking profits from these stocks and shifting their investments to more stable, dividend-producing stocks.
Berkshire Hathaway Sold 50% of Its Apple Shares
Speaking of selling tech stocks, Warren Buffett, chairman and CEO of Berkshire Hathaway, supported the sale of roughly 50% of the firm’s Apple stake since the start of the year. Keep in mind, the firm still owns about 400 million shares of Apple stock!
What’s driving the tech selling?
A few things are likely: economic caution, profit taking and maneuvers spurred by the recent jobs report.
July 2024 Jobs Report
According to the Bureau of Labor Statistics (BLS), the U.S. economy added 114,000 jobs in July, a noticeable slowdown from June’s 206,000 jobs.
The unemployment rate also rose to 4.3% in July from 4.1% in June.
Unemployment Rates at a Glance (Last 20 Years)
Another Interesting Fact From the BLS Jobs Report:
The number of people employed part time for economic reasons rose by 346,000 to 4.6 million in July.
These individuals, who would have preferred full-time employment, were working part time because their hours had been reduced or they were unable to find full-time jobs.
Suffice it to say, the labor market is cooling some. Also, much of the recent job creation is government and health care jobs.
Early August Stock Market Activity
August started with a market correction.
Interestingly, 94% of years have a decline of 5% or worse (see chart). Said differently, the U.S. stock market experiences a correction almost every year.
By definition, a market drop of 10% is considered a correction, while a drop of 20% signals a bear market, the latter occurring about every four years.
Even with the correction, we’re still up about 13% on the year.
Remember, the stock market dislikes uncertainty—the jobs report, upcoming elections, recession rumors and geopolitical turmoil (Iran-Israel tensions) often cause market movements in every direction.
Will the Fed Cut Interest Rates This September?
It’s likely they will, as well as in November and December. Given the recent jobs report and signs of economic slowing, there’s increasing pressure on the Fed to cut rates.
Keep in mind, the Fed’s focus is managing inflation and maintaining full employment. In general, they’re not supposed to care about the stock market.
Your Portfolio
We’re focused on balancing portfolios.
Recently, portfolios have become overweighted in tech stocks due to the sector’s rapid growth over the past few months.
It’s time to take some profits.
After extensive financial modeling, we’re also pulling out of the Vanguard Health Index (VHT). While it’s been one of our favorite investments, it’s now causing health care to be overweighted in portfolios as other funds have added more health care stocks to their mix.
Before You Go
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