We hope you all had a great Labor Day. Summer is winding down, and apparently, it’s been a fun one if the travel and entertainment numbers are any indication. Flights, hotels, and cruises all reported booming numbers. The fun didn’t stop there: Bloomberg reported that they forecast the Taylor Swift & Beyonce summer tours along with the Barbie & Oppenheimer movies to add over $8.5 billion to the US economy…that’s bigger than many country's entire GDP!
The markets did finally take a breather in August, with the S&P and the Nasdaq posting their first monthly loss since February. Every major index was down for the month, but a small rally the final week of the month recovered some of the pullback; small caps ended down -5% for the month. You can see the full YTD numbers below, and for those of you keeping track, the S&P Equal Weight Index is up 5.3%. We’re still in an uptrend, for now, but it continues to be carried by a relatively small number of companies. Growth is still dramatically outperforming Value.
The real excitement was in fixed income, however, when the 10 yr Treasury spiked up to 4.34%, which is the highest it has been since before the Great Financial Crisis of 2008. That sent bond values down sharply before stabilizing some the past week. Money market and CD rates stay virtually unchanged the past couple months.
We’ve mostly wrapped up 2nd quarter earnings season at this point. Most companies beat expectations, although there were some noticeable misses. (Looking at you, Dollar General!) S&P 500 profit margins expanded 11.9% vs the long-term average of 8.9% since 2000. That’s good news, but I think with such a mixed economy and so much talk of recession, the bar feels like it was set low in some regards.
We’ve spoken in the past about seasonality in the markets and expected some type of pullback in August. As Raymond James Chief Investment Officer Larry Adam reminded us this month, “Historically, the S&P 500 has experienced three to four 5% pullbacks a year – and this year, we’ve only had one. We continue to believe the market is in an uptrend.”
With that said, September is typically the worst-performing month of the year. Given the big gains we’ve seen YTD on the indexes, a bit more pullback and volatility is more than likely in store for the near term. If you’ve been sitting on too much cash and feel left behind this year, consider using any potential dips in the market as opportunities to reallocate.
Lastly, many economists have been surprised by the resiliency of the American economy this year, much of which has been propped up by strong consumer spending and very low unemployment. Based on the current data, Raymond James has officially pushed back their forecasts for a mild recession from late 2023 to the first quarter of 2024. Goldman Sachs says the chance of recession in the next 12 months is down to 15%. So, there is some consensus in either calling for a mild recession or one that’s likely not to start for some time. My money still says trying to predict the timing of that will be nearly impossible, and that’s really not what serious investors should be focusing on anyway. What we do know right now is that the good news is still good news: Inflation is coming down, unemployment is staying very low, and GDP is still positive.
Here’s your Useless Fact of the Month:
If you enjoy movies, then no doubt you used to look forward to New Movie release day every week at your local video rental. Do you remember the first time you heard about a new mail-order DVD rental service called Netflix? At first, it sounded terrible: You mean I have to wait to get my rental in the mail instead of just stopping by Blockbuster after work? Well, the concept grew like wildfire and became a household name in a relatively short time. Blockbuster of course, would slowly go extinct.* So, it’s not without some irony that 24 years after Netflix mailed out their first DVD in a red envelope, they will be mailing out their last red envelope this month on Sept. 29th. Of course, they aren’t going extinct; just moving exclusively to streaming content. (DVDs have been on the decline, and they now lose over $100 million annually on them.) Feel free to impress your friends with this one:
Do you know how much you would’ve made if you’d invested $10k into Netflix 20 years ago?
(Compliance wants us to remind you past performance isn’t indicative of future results and that we are in no way telling you to go out & buy NFLX.)
* Technically, Blockbuster has 1 remaining franchise store still in operation. It’s in Bend, OR, and has become quite the tourist destination for those that enjoy 80’s & 90’s nostalgia.