This is Brad Barrie, Chief Investment Officer and Portfolio Manager with Dynamic Wealth Group. Welcome to this market and economic update. The stock market is experiencing a broad pullback with the S&P 500 down over 5% from its recent peak and the Nasdaq in correction territory.
In this video, we’ll talk about the factors driving this pullback and how investors should view recent events with perspective. Market declines are never pleasant, but understanding how to manage them can help investors to stay on track toward their financial goals.
First, the market began experiencing a rotation about a month ago when large cap technology stocks declined, and areas such as small caps rose. Investors have grown more nervous about the long bull market in technology and AI stocks. The Magnificent Seven stocks, for instance, have gained 162% since the beginning of last year, even with the most recent pullback.
More recently, all parts of the market have struggled due to new economic data and concerns around the Fed. Many investors worry that the Fed may have waited too long to cut rates, which we’ll explore in a moment.
This chart highlights the importance of having a longer time horizon, and not just focusing on what’s happened over the past few days or weeks. Despite the recent decline, the S&P 500 has still made significant gains over the past few years. This has been the case despite significant events such as the 2022 bear market, the pandemic, and more.
Second, investors are concerned about the economy, as the Fed keeps rates high. The jobs report for July showed that unemployment ticked up to 4.3%, exceeding expectations, while job growth slowed. This comes just days after the Fed’s latest meeting in which they held rates steady but signaled a willingness to cut at their next meeting in September.
One reason this has led to concerns is the Sahm rule, named after a former Fed economist. The Sahm rule is a recession indicator that is based on a sudden rise in unemployment. The July unemployment rate triggered the Sahm rule, leading some to worry about a “hard landing” by the Fed.
However, it’s important to maintain perspective here as well. While unemployment has risen, it is still near historic lows. Even Claudia Sahm herself has stated that her rule is not a hard-and-fast law, but a statistical regularity. This means that while the Fed needs to watch the labor market carefully, it does not mean that we are necessarily in a recession just yet.
Either way, the Fed is widely expected to cut rates at its next meeting, and most likely at every other successive meeting. This would bring the rate relief that the market is hoping for, albeit not as quickly as many investors would like.
Finally, this chart helps to put recent market swings in perspective. We have experienced two 5% or worse pullbacks for the S&P 500 so far this year which is well within normal levels. In fact the average year experiences 4 or 5 such pullbacks, and bear market years experience many more.
While market declines are never pleasant, it’s important to keep a level head. The market is adjusting to a new macroeconomic backdrop which could take time to play out. In many ways, the current economic environment is exactly what investors had hoped for just a few months ago with inflation improving, unemployment still low but rising, and interest rates that could decline soon. History shows that staying invested in an appropriately built and diversified portfolio of stocks, bonds, and alternatives is still the best way to achieve long-term financial goals, even if there are some bumps along the way. At Dynamic Wealth Group, we follow a multi-dimensional asset allocation approach, building portfolios that target to incorporate many different drivers of return, helping to add to the layers of diversification. Especially during times like now. Our core philosophy is built on preparation over prediction, and while there are signs of both optimism and pessimism, the future is unknown.
We hope you found these high-level insights helpful. If you are a financial advisor and would like more information on our Multi-Dimensional Approach towards asset management, feel free to download our eye-opening whitepaper titled, “Busting seven risk and return myths”, click the link below or visit our website DynamicWG.com, or emailing us at: Info@DynamicWG.com. If you are an individual investor, we are happy to address any questions you may have and put you in touch with a qualified advisor if so desired. Until next time, take care everyone, and make smart, logical & fact-based financial decisions.
Disclaimer:
Clearnomics and Dynamic Wealth Group, LLC are not affiliated entities. No part of this should be taken as investment advice. Consult your financial advisor for specific investment recommendations tailored to your specific situation.
Dynamic Wealth Group (“Dynamic”) is an SEC registered investment adviser. SEC registration does not constitute an endorsement of Dynamic by the SEC, nor does it indicate that Dynamic has attained a particular level of skill or ability. This material prepared by Dynamic is for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product. Opinions expressed by Dynamic are based on economic or market conditions at the time this material was written. Economies and markets fluctuate. Actual economic or market events may turn out differently than anticipated. Facts presented have been obtained from sources believed to be reliable. Dynamic, however, cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.
Dynamic does not provide tax or legal advice, and nothing contained in these materials should be taken as tax or legal advice.
Any reference to an index is included for illustrative purposes only, as an index is not a security in which an investment can be made. Indices are unmanaged vehicles that serve as market indicators and do not account for the deduction of management fees and/or transaction costs generally associated with investable products. Past performance is no guarantee of future results. Actual returns may be lower.
< Commentary
Perspective on the Fed and Market Sell-Off
This is Brad Barrie, Chief Investment Officer and Portfolio Manager with Dynamic Wealth Group. Welcome to this market and economic update. The stock market is experiencing a broad pullback with the S&P 500 down over 5% from its recent peak and the Nasdaq in correction territory.
In this video, we’ll talk about the factors driving this pullback and how investors should view recent events with perspective. Market declines are never pleasant, but understanding how to manage them can help investors to stay on track toward their financial goals.
First, the market began experiencing a rotation about a month ago when large cap technology stocks declined, and areas such as small caps rose. Investors have grown more nervous about the long bull market in technology and AI stocks. The Magnificent Seven stocks, for instance, have gained 162% since the beginning of last year, even with the most recent pullback.
More recently, all parts of the market have struggled due to new economic data and concerns around the Fed. Many investors worry that the Fed may have waited too long to cut rates, which we’ll explore in a moment.
This chart highlights the importance of having a longer time horizon, and not just focusing on what’s happened over the past few days or weeks. Despite the recent decline, the S&P 500 has still made significant gains over the past few years. This has been the case despite significant events such as the 2022 bear market, the pandemic, and more.
Second, investors are concerned about the economy, as the Fed keeps rates high. The jobs report for July showed that unemployment ticked up to 4.3%, exceeding expectations, while job growth slowed. This comes just days after the Fed’s latest meeting in which they held rates steady but signaled a willingness to cut at their next meeting in September.
One reason this has led to concerns is the Sahm rule, named after a former Fed economist. The Sahm rule is a recession indicator that is based on a sudden rise in unemployment. The July unemployment rate triggered the Sahm rule, leading some to worry about a “hard landing” by the Fed.
However, it’s important to maintain perspective here as well. While unemployment has risen, it is still near historic lows. Even Claudia Sahm herself has stated that her rule is not a hard-and-fast law, but a statistical regularity. This means that while the Fed needs to watch the labor market carefully, it does not mean that we are necessarily in a recession just yet.
Either way, the Fed is widely expected to cut rates at its next meeting, and most likely at every other successive meeting. This would bring the rate relief that the market is hoping for, albeit not as quickly as many investors would like.
Finally, this chart helps to put recent market swings in perspective. We have experienced two 5% or worse pullbacks for the S&P 500 so far this year which is well within normal levels. In fact the average year experiences 4 or 5 such pullbacks, and bear market years experience many more.
While market declines are never pleasant, it’s important to keep a level head. The market is adjusting to a new macroeconomic backdrop which could take time to play out. In many ways, the current economic environment is exactly what investors had hoped for just a few months ago with inflation improving, unemployment still low but rising, and interest rates that could decline soon. History shows that staying invested in an appropriately built and diversified portfolio of stocks, bonds, and alternatives is still the best way to achieve long-term financial goals, even if there are some bumps along the way. At Dynamic Wealth Group, we follow a multi-dimensional asset allocation approach, building portfolios that target to incorporate many different drivers of return, helping to add to the layers of diversification. Especially during times like now. Our core philosophy is built on preparation over prediction, and while there are signs of both optimism and pessimism, the future is unknown.
We hope you found these high-level insights helpful. If you are a financial advisor and would like more information on our Multi-Dimensional Approach towards asset management, feel free to download our eye-opening whitepaper titled, “Busting seven risk and return myths”, click the link below or visit our website DynamicWG.com, or emailing us at: Info@DynamicWG.com. If you are an individual investor, we are happy to address any questions you may have and put you in touch with a qualified advisor if so desired. Until next time, take care everyone, and make smart, logical & fact-based financial decisions.
Disclaimer: