With Federal Reserve Chairman Jerome Powell’s speech last week that his “confidence has grown that inflation is on a sustainable path back to 2%,”1 and that the time had come to begin cutting rates, the stock market has nearly fully recovered from sharp losses earlier in the month.
In other interest rate-related news, the Bloomberg Treasury total return index is down 11% from its 2020 peak, which exceeds every other drop over the last 100 years. At the same time, TLT, a bond-tracking ETF (exchange-traded fund) is now even for the year after initially being down 10% early in 2024. We’re already seeing bond markets indicating a big shift and so we are anticipating money flowing out of money market funds and into bonds and bond ETFS. This is a major opportunity for everyone.
Over the last month, the returns of the S&P 500, the “Magnificent 7” and the equal-weighted S&P 500 are almost identical, which indicates that the tech trade may be ebbing as other parts of the market are having their turn in the sun and making up some lost ground. We feel at WTA that the tech trade is far from over, however, as technology is driving so many businesses from their actual goods and components to their operations and the way they do business. So, we remain overweight tech in many of our equity ETF portfolios. We do remain wary of the overall high valuation of the market but rather than address this in the weightings of our portfolio models, we handle this with every client individually in our risk management and asset allocation process. We tailor everything to our clients with our Wealth Shield process.
Other than the Fed Chair’s comments, the biggest economic news of last week came in the form of an enormous downward revision to job gains over the 12 months ending this March – down 818,000. This is 27% fewer jobs than initially reported and adds fuel to the speculation that the economy is slowing down faster than previously thought. After the bad jobs and manufacturing data a couple of weeks prior, we are paying attention to this especially as we enter the volatile election season, even as volatility in the stock market has dropped precipitously over the last 2 weeks. We’ll continue to monitor the developments and encourage you to give us a call at The Wealth Training Academy if you have concerns about the stock market or want to pursue the opportunities before you in the bond market.
1https://www.usnews.com/news/us/articles/2024-08-23/takeaways-from-fed-chair-powells-speech-at-jackson-hole
