Vericrest Insights - August 2024

How quickly things change.

July was the month the stock market was turned on its head. The tech stocks that powered market gains in the first six months of the year stumbled while small-caps, which had just barely recovered from 2022’s bear market at the start of the month, surged.

In a surprising inversion of the first half of the year, only two of the S&P 500’s eleven sectors posted declines in July: Communication Services (-4.2%) and Information Technology (-2.1%). The market was led by Real Estate (+7.1%), one of the worst-performing sectors over the last twelve months, and Financials (+6.3%).

Rate-sensitive stocks got a boost on July 11 when data showed consumer prices unexpectedly declined in June - raising speculation on a potential September rate cut. In the five days following that report, the small-cap index rose 11.5%, its biggest rally since the Covid turmoil of 2020.

Here we are now in August and things have not been good so far this month…..ok ok it’s only the second day of the month, but stocks are deeply in the red so far, as the July U.S. payrolls report showed fewer than anticipated jobs were added and the unemployment rate unexpectedly jumped to 4.3%. Major stock indexes have been reacting negatively to this news.

Headlines are now warning of a recession -? pointing to the Fed’s inaction as Fed Chair Jerome Powell spoke at the conclusion of this week’s policy meeting on Wednesday. Powell did note, however, that a rate reduction “could be on the table” as soon as September.

Market Volatility: Keep Calm and Carry On

Last month, we spoke about market volatility and the need to ignore the noise. (If you haven’t read last month’s newsletter, you can go here.)

The S&P 500 is still above where it was two months ago and sharply higher than three months ago. This may just be a normal market adjustment. These market corrections can be healthy in resetting stock valuations and investor expectations within a longer-term market advance. We know that markets can be volatile in the short-term. But we also understand that having a long-term strategic asset allocation plan and sticking to that plan through periods of market volatility can help keep you on the right track toward reaching your financial goals.

A market correction is considered to be a decline of 10% or more from the recent closing high. That means that historically speaking, the S&P 500 has experienced a correction every 1.84 years, but the exact timing and duration are unpredictable. For example, since 1950, the S&P 500 has had 39 corrections, averaging one every 1.9 years. However, in 2022, there were four corrections, and in 2023, there was one.?

Diversification is considered a necessity for a well-balanced portfolio that aims to weather market downturns effectively. If an investor holds only one stock, and it falls by 20%, the portfolio's value will decline by the same percentage. However, if the investor owns two stocks and one falls by 20%, the portfolio's average correction is limited to 10%. By spreading investments across different sectors, asset classes, and geographies, investors can manage risk and position their portfolios for future growth opportunities.?

Although no one can predict which individual investments will do best in the future, we develop our investment strategies for long-term success with an emphasis on balance and diversification and a focus on keeping costs low and maintaining discipline. This includes:

• Broad strategic allocation among the primary asset classes such as equities, fixed income and cash.
• Sub-asset allocation within classes, such as domestic and non-domestic securities or large-, mid- or small-cap equities.
• The importance of rebalancing to maintain a consistent risk profile.

We will continue to follow the markets, interest rates, and the Fed decisions and keep you up-to-date on any portfolio adjustments we make.

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For Further Reading

Here are two recent articles from Forbes on market trends, cycles and volatility:

• Today’s Market Leaders Won’t Rule Tomorrow: The case For Diversification
• Navigating Market Volatility: Strategies For Long-Term Investors

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If you have an inherited IRA, the IRS finally provided some clarification after a 2019 law change:

• Heirs Finally Get an Answer from IRA About Money in Inherited Retirement Accounts

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Could there be a link between investing and wellbeing?

• Investing and Wellbeing

#CFP #financialplanning #feeonlyadvisor

Bill Davis is a CERTIFIED FINANCIAL PLANNER? and Managing Partner with Vericrest Private Wealth LLC, a financial advisory firm in Newtown, Pennsylvania.

Vericrest Private Wealth LLC ("Vericrest") is an SEC registered investment advisory firm. The information provided herein should not be?construed as personalized investment advice and should not be considered as a solicitation to buy or sell any security or investment advisory service.?Past performance is no guarantee of future results, and there is no guarantee that future investments will be profitable. While we believe that third party information provided is accurate, Vericrest does not guarantee or otherwise warrant such information.?For more information please contact Vericrest or refer to the Investment Adviser Public Disclosure website?(www.adviserinfo.sec.gov) to review important disclosures about our firm.