,

Rocky Autumn? Your Move, Fed!

,

Markets tumbled recently, giving their worst performance of 2024. (1)

And then promptly rallied again.

If you’ve been reading my recent emails, you’re probably not surprised. Let’s talk about what’s going on.

What’s driving the volatility?

Profit-taking, for one. Markets notched big gains in August, and traders decided to cash in some profits, which drove prices lower. (2)

Economic concerns are also in focus again. The latest jobs report showed that the labor market is slowing down, as feared.

August data showed that jobs grew by a lukewarm 142,000, missing expectations. (3)

Data for prior months were also revised downward, giving July the lowest job creation number since December 2020.

Markets dropped in response to the data, largely out of worries about growth. This behavior is the flipside of the trend we’ve seen repeatedly this year – where markets reacted positively to “bad” news because traders hoped it would boost the case for a cut in interest rates by the Federal Reserve.

Now, bad news is bad news again. Unless it’s good news.

It's about as clear as mud. We can expect this kind of vacillation between optimism and worry to continue.

What happens next?

Markets have had an overall strong run this year through the end of August. (4)

Now, we may be entering a chopp(ier) season for markets. We have a lot of uncertainty on the horizon: economic news, Fed moves, a presidential election, and geopolitical issues that oscillate between heating up and cooling off. It wouldn’t be surprising at all to see more volatility or a bigger correction as investors digest Fed policy and economic data.

However, the fundamentals still support growth. Inflation is heading lower toward the 2% goal. (5)

Inflation chart showing decline over last 2 years

Both headline and core measures of inflation continue in the right direction—lower!

Economic growth may be cooling but is still expected to be strong this year. (6)

It’s always tempting to sell and wait out rocky markets.

The problem is that it leaves you on the sidelines when markets move again.

The chart below (one of my faves) shows significant market drops since 2000.

You can see that corrections happen pretty regularly. Even in positive years.

Market drops Intra-Year and Year-End Performance

Pullbacks of varying degrees within every year since 2000.

I wish I could predict when markets would drop and when they’d pick back up again. But it's okay! No one can.

We build strategies based on our own goals and harness the market to put our portfolios to work. We make careful adjustments and tactical shifts when needed. 

We don’t let short-term market moves throw us off course. Some degree of uncertainty will ALWAYS exist in markets. It's why long-term stockholders have been rewarded, historically, when compared to investments with guaranteed rates of return.  

And as a market technician, presently I don't see a lot of activity that often precedes structural bear markets. Think 2000-2002 and 2008-2009. Nor do I see evidence of a cyclical bear market, like 2022, when markets pulled back 25% within the calendar year. 

Stay tuned, and we'll keep you updated throughout what could be a rocky autumn.

∞