Executive Summary
- After experiencing its first pullback of more than 5% since the recent market lows in late October 2023 in April, the S&P 500 index bounced back toward new all-time highs during the month of May.
- The market advance was largely due to corporate earnings growth exceeding expectations for the first quarter. Markets moved up despite continuing inflation pressures, which have diminished the probability of the Fed cutting rates in the near term.
- The job market continues to send mixed messages. Friday's unemployment report saw job creation above expectations, with 272,000 new jobs reported. However, the household survey showed a loss of more than 400,000 jobs. We also saw the number of job openings dropped to the lowest level since before the pandemic.
- Despite economic data that would lead most politicians and economists to be cautiously optimistic, consumer sentiment surveys continue to show dissatisfaction and frustration with the current state of the economy. This is especially true for consumers in the lower end of the wage and wealth spectrum.
- As we move towards the summer months, the political conventions, and the upcoming elections in the fall, we would not be surprised to see some additional volatility arise. However, history and wisdom suggest that staying the course with an appropriately designed, diversified portfolio to be the best course of action over the long term.
The members of the Investment Committee met on the afternoon of Monday, June 10th. Over the last month, markets continued their march toward new all-time highs, slightly surpassing the levels reached in late March. We were happy to have all of our committee members present to review and share perspectives from the economists and market strategists we follow.
After moving up significantly from late October 2023 to the end of March 2024, the S&P 500 index went through its first downturn of more than 5% in April. This was largely driven by two things. The first catalyst was the continuing trend of inflation reports coming in above expectations. Without further progress toward lower inflation, the markets have now pushed out expectations for any Federal Reserve Bank interest rate cuts further into the future.
The second catalyst was unrest in the Middle East, as Iran sent more than 300 drones, missiles, and bombs directly into Israel. There was concern that this would lead to an escalation of the conflict there. Thankfully, as of now, things have not moved in that direction. This has allowed the market to move back to new all-time highs as first-quarter earnings for corporate America have once again exceeded expectations.
The markets were also paying significant attention to the unemployment report released on Friday, June 7th. As you can see in our first chart below, the headline employment survey surprised to the upside and showed that 272,000 new jobs were created. However, the household survey showed a loss of more than 400,000 jobs. The household survey usually tracks the economy more closely at turning points.
We also know that the unemployment rate moved up to 4%. From a historical standpoint, the unemployment rate has never moved up by more than 1/2% without shortly thereafter being followed by a recession. The unemployment rate has now moved up .6% from its recent low of 3.4%. We will continue to watch and monitor developments in the employment markets.
There is also a growing divergence between hard economic data, which has generally been positive, and has led most politicians and economists to be cautiously optimistic. However, consumer sentiment surveys continue to point toward frustration and dissatisfaction with the current state of the economy.
We are watching this growing bifurcation in the economy. Those at the higher end of the income and wealth spectrum seem to be continuing to eat out, travel, and spend money, even in the face of higher prices. While those at the other end of the spectrum, which includes many young families, seem to be struggling with the cumulate impact of higher inflation and higher interest rates. We are seeing this show up in rising defaults in areas such as credit card and auto loan defaults.
The summer months tend to bring lighter trading volume to the markets. This can exacerbate volatility to both the upside and the downside. We also know that presidential election years tend to bring more volatility from the mid-summer political conventions until mid-October, just before the elections. While we would not be surprised to see a pickup in volatility over the next few months, we would not suggest making changes to your asset allocation strategy, unless your goals have changed. As you can see from the chart below, the market favors those who stay invested over long periods of time.
Final Takeaway
The committee members understand that seeing price swings in your portfolio over the short term can be unnerving. We wanted to bring you this information and perspective to help you stay the course toward pursuing your long-term financial goals. As always, if you have questions about your particular situation, please do not hesitate to reach out to your advisor. We are here for you. Have a great day.
Should you have any questions regarding these notes, please do not hesitate to contact Kevin at (678) 401-6102
Investment Committee
Jesse Hurst, Financial Advisor- Chair, Impel Wealth Management
Clint Gautreau,Financial Advisor- Horizon Financial Group
Nathan Ollish, Financial Advisor-Impel Wealth Management
Kevin Myers, Financial Advisor -ATL Global Advisors
Dusty Green, Financial Advisor- Spencer Financial Inc.
Grace Hayden MacNaught, Financial Advisor- Atlanta Planning Group
The views stated in this piece are not necessarily the opinion of Cetera Advisors LLC and should not be construed directly or indirectly as an offer to buy or sell any securities. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed.
Past performance does not guarantee future results. Additional risks are associated with international investing, such as currency fluctuations, political and economic stability, and differences in accounting standards. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing. Additional risks are associated with international investing, such as currency fluctuations, political and economic stability, and differences in accounting standards.
Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing. A diversified portfolio does not assure a profit or protect against loss in a declining market.
TheRussell 2000 Indexmeasures the performance of the small-cap segment of the U.S. equity universe and is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.