Market Update - August 5, 2024
BY: RYAN P. JOHNSON, CFA, CFP® - MANAGING DIRECTOR OF INVESTMENTS
The S&P 500 declined 2% last week and sold off over 3% at the open this morning. As of this writing, the stock market is about 8% below recent all-time highs reached on July 16th and is back to a level that was a new high earlier this year and at a level last seen just three months ago. This is the second sell-off of over 5% this year, while the “average” year sees more than three of these, including one 10% correction. Technology, and semiconductor stocks specifically, had driven the rally from October through mid-July and have sold off more than the market average. This profit-taking is an unwinding of speculative trades, many of which may have been exaggerated by computer-driven trading. As people who work for your financial planning, investment, and tax needs, we do not let fear drive investment decisions.
For risk management, we try to limit exposure to any one stock to 5% of equities, even though a few stocks have each recently grown to 7% of the S&P 500. Also, if the market is down more than 10% from recent highs, we try to limit reducing equities at all. Instead, cash needs are sourced from the fixed income portion of the portfolio, which recently includes Treasury exposure. As Treasury yields have fallen, bond prices have increased, making this an attractive source of funds should an unexpected cash need arise.
Living through investment losses and down markets is not easy; it can take an emotional toll. It is human nature that the pain of losses is much higher in magnitude than the joy from gains of a similar amount. We are here to help you navigate through periods like this, and we are here to remind you that you must focus on the longer term and to stick with plans that have been made. Not selling when prices are low takes discipline.
In our recent Market Insights (https://mybuckingham.com/insights), we noted:
• Regular rebalancing, profit-taking, and realizing some capital gains have been common in our clients’ portfolios.
• While the S&P 500 already had one 5% pullback this year, another could happen at any time, and we view this as a normal and necessary function in the market.
• As we have previously mentioned, there may be short-term pullbacks or volatility, but we are broadly positive on the outlook for stocks due to the expected double-digit growth in earnings this year and next.
If your needs are changing or if you would like more information on the markets or your portfolio, please contact us: https://mybuckingham.com/contact.
Thank you for your continued trust and support.