Hope you are all doing well. It was a bad week for stocks as the S&P 500 and the NASDAQ fell for the third week in a row and the Dow snapped a four-week string of gains. The sell-off intensified on Friday, and the downturn left the S&P 500 5.7% below the record high that it achieved on July 16. The NASDAQ is in a correction, down 10.0% from its July 10 record. Despite a negative momentum shift at mid-month, the S&P 500 finished July with a 1.1% gain as the index posted its eighth positive month out of the past nine. The Dow outperformed its peers with a 4.4% gain while the NASDAQ lagged, declining 0.8% in July. If you have been waiting for an opportunity to move some money back into the stock market. This would be a decent entry point. It may get a little worse before it gets better but I still believe the market ends the year higher than where we are now. Steven Tyler’s vocal cord injury forced Aerosmith to retire this week, I have broken down this week’s update using some of their songs and lyrics.
Permanent Vacation
U.S. jobs growth slowed for the third month in a row. More Americans took permanent vacation from their job as the unemployment rate rose to the highest level in nearly three years. July’s gain of 114,000 jobs came in below expectations and was far short of the 12-month average of 215,000. The unemployment rate rose to 4.3% from 4.1% the previous month. I think the market is over reacting to this job report. I think this could be a one off and not a sign of an impending recession because the labor market is continuing to expand. The labor force increased by 420,000 workers in July and the number of people unable to find jobs grew by 352,000. In a recessionary environment the labor force shrinks, as disappointed workers give up on their job search, and employment shrinks even faster. That is not the case at the moment.
Livin’ On The Edge
The U.S. Federal Reserve continues to see something right with the world today and everybody knows it’s wrong. The Fed again held off on cutting interest rates. The market remains disappointed with the Fed, feeling they are wrong in holding rates steady. Chair Jerome Powell did offer some hope to those pushing for a rate cut. He said that an initial reduction could be on the table for its next meeting in mid-September if inflation continues to ease. The Fed also pivoted in its updated policy statement, which suggested that officials are attentive to concerns about labor market weakening in addition to inflation risks. I still believe the Fed will not cut rates until the very end of the year.
Mama Kin
Nasdaq has been floatin’ down stream and losin’ touch with all that is real. The tech heavy Nasdaq is down more than 10% despite the biggest technology companies reporting great results this week. Earnings season moved past the halfway point. Analysts are now expecting S&P 500 companies overall to post an 11.5% second-quarter earnings increase compared with the same quarter a year earlier. That projection is based on results released so far and projections for companies that haven’t yet reported. Entering earnings season, the projected growth rate was 8.9%, that’s a pretty large out performance. Which is why I firmly believe we will rebound from this correction swiftly.
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