MLD Market Update – Sept 2024

Join Chad Larson, Senior Portfolio Manager, as he gives his thoughts on the market for Sept 2024.

September’s Money Matters: Navigating Market Turbulence and Economic Shifts

Welcome to September’s Money Matters with Chad Larson from MLD Wealth. As we transition from summer holidays to the start of a new season, it’s time to reflect on the economic landscape and market trends that will shape our financial decisions in the coming months.

August Market Recap: A Wild Ride

August proved to be a tumultuous month for the markets, with a sharp correction that particularly affected the tech sector. This correction caused many to reevaluate their bullish outlook. Let’s revisit our January predictions and see how they’ve played out:

• We anticipated exuberance in the early part of the year, driven by expectations of aggressive Fed rate cuts.
• This led to a resurgence in the tech-led economy, with AI mania and companies like Nvidia leading the charge.
• However, we remained cautious, noting that the market’s performance was narrowly focused on the “Magnificent Seven” tech stocks.

In response to this narrow market, we made a tactical shift towards a more equal-weight approach, which has proven successful so far. While we expected some choppiness towards the end of the year, it arrived earlier than anticipated in August.

September Market Outlook: Challenges and Opportunities

Historically, September has been a challenging month for the markets. Since 1950, it has seen an average decline of 0.8%. In fact, September has been the only month down on average for major indices like the Dow, S&P 500, Nasdaq, and Russell. The last four Septembers have been particularly difficult:

• 2023: Down 5%
• 2022: Down 9%
• 2021: Down 5%
• 2020: Down 4%

Despite these historical trends, there are several positive factors to consider:

1. Market broadening: Two-thirds of the S&P 500 was up in August, and the New York Stock Exchange advance-decline line hit an all-time high.
2. Strong earnings: Corporate profits are at record highs, with Q2 earnings up 13% and positive projections for the rest of the year.
3. Bullish sentiment: The American Association of Individual Investors poll shows bullishness at 51.2%, above the long-term average of 37.5%.
4. Waning inflation: The July core PCE, the Fed’s preferred gauge of inflation, dropped to 2.5%, approaching the Fed’s 2% target.

Federal Reserve and Interest Rates

The Federal Reserve’s actions continue to play a crucial role in shaping market expectations. Recent developments include:

• The Bank of Canada cut rates for the third time in a row, lowering its key interest rate by 25 basis points.
• The US Federal Reserve is expected to cut rates soon, with traders anticipating a potential cut in September.
• The yield curve has flattened, reversing what has historically been a classic recession indicator.

While rate cuts can stimulate the economy, it’s important to note that aggressive cuts might be interpreted as a sign of underlying economic concerns. The market generally believes that any significant job deterioration will be met with more rate cuts from the Fed, providing a potential floor for the market.

Tech Sector and Nvidia

The tech sector, particularly companies like Nvidia, continues to make headlines. Nvidia recently experienced a significant drop, losing almost 10% of its market cap in a single day. This volatility in one of the largest S&P 500 companies underscores the importance of diversification and careful stock selection.

Investment Strategy and Outlook

As we navigate the remainder of the year, here are some key considerations for investors:

• Rotation: After a potential recession, focus on sector rotation and diversification.
• International exposure: Consider increasing allocations to international stocks outside the US and Canada.
• Equal-weight approach: Continue to favor equal-weight exposure to the US economy.
• Long-term perspective: Remember that time in the market typically outperforms timing the market.

While we expect some turbulence in the coming months due to seasonality and potential political volatility, the overall outlook remains positive. Tailwinds include an accommodating Fed, easing money supply, and strong corporate earnings.

‍

Conclusion

As we enter the final quarter of the year, it’s essential to maintain a balanced perspective. While September historically presents challenges, the underlying economic fundamentals and market breadth provide reasons for optimism. Stay focused on your long-term investment goals, and don’t hesitate to reach out to the MLD Wealth team for guidance during these uncertain times.

Remember, market turbulence is normal, and well-constructed portfolios are designed to weather these fluctuations. Here’s to a productive September and a strong finish to the year ahead.