Short-Term Noise Can Lead to Long-Term Opportunity

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Key Summary:

  • Markets have more noise and volatility than ever before.
  • The best forward returns happen when we build bigger positions in noisy periods.
  • Being a contrarian when fear, uncertainty, and panic has historically paid handsomely.

Very Important thesis: If equities generate roughly ~10-11% a year over time, the best companies with leading brands and dominant global franchises, in theory, should compound at 13-15%+ over time. Looking backward, that is exactly what’s happened. Our best opportunity as an investor: buy more great brands when the market acts irrationally short-term. Your long-term returns will thank you.

Today’s Short-term Noise Won’t Last Forever.

With so much fear, uncertainty, and doubt (FUD) in markets and the economy today, I thought I would try and turn this frown upside down using some contrarian thinking. I’ve been an investor for 30 years now, so I’ve seen a lot of different kinds of markets. Between the Internet boom and bust, to the raging housing boom and crash during the GFC to the Covid crash and money printing experiment that created the interest rate and inflationary “normalization” process, the ride has been a wild one. During times like today, it’s important to remember that the short periods of FUD, like hurricanes, don’t generally last very long and when the uncertainty starts to wane, stocks and animal spirits wake up in a big way. It’s only a matter of time.

If you only take one thing from today’s musing, take this: storms are a sideshow to sunnier days. Markets go up 80-85% of the time so it’s in the down periods that we get an opportunity to buy great merchandise on sale so when the sun comes out again, you’ll own more quality and your speed to recovery gets accelerated.

Pessimism is Everywhere. Contrarian Signal?

We live in very interesting times. Tariff announcements are happening daily. Self-induced cracks in the economy are developing. Friction is developing between U.S. politicians and our allies. This is a moment in time and cooler heads will prevail in time. Clearly, the market is sniffing out a slowing of economic growth coming from policy uncertainty. While deep selloffs never feel good, this one in particular feels quite extreme because investors of all kinds have simply decided to “step-away” from markets until some certainty re-appears. The selling has been persistent because it’s a 1-sided market for now. Buyers are on strike, sellers and shorts are bold. Need proof? The below chart from Goldman Sachs shows how severe the de-risking has been in a short period of time. Hedge Funds, CTA’s, systematic investors and even regular retail investors, have all been selling due to high bouts of uncertainty.

With few buyers on the other side, the market just drifts lower, and rallies get sold quickly. Imagine what markets will do if/when there is some better policy certainty, consumers and businesses have a better understanding of the rules of the road and earnings variability stabilizes. Sellers will dry up. Shorts will cover. Animal spirits will return with a vengeance. There will be a lot of buyers all rushing back at once. I suggest we all start building bigger positions so when the party heats up, we have a great seat.

To give you a sense how severe the policy uncertainty is today, the chart below shows an index that measures it. We are higher than any other period over the last 25 years. Kind of incredible really, there were some scary moments in these former spikes. There were some great buying opportunities then too, and they all felt terrible at the time.

To Reiterate:

“De-risked” is not a permanent state. At some point, when either A) markets sell-off to a level where sellers feel like the doom is fully reflected in prices, or B) situations are getting better on a rate of change basis, or C) the major drivers of vol and downside begin to vanish, there’s going to be a complete reversal of the de-risking as re-risking happens all at once. We never know the WHEN, but we do know investors will not stay de-risked forever.

This is not a complex concept but emotionally, it’s often difficult to execute. Trying to pick bottoms is a tricky business, particularly given every day we see a rash of new headlines that algorithms love to trade against. Be systematic about adding exposures to your favorite strategies on deep red days. Do not buy all at once, split your buy orders up and build these positions while the pessimism is incredibly high, and prices are attractive. Remember, volatility and opportunity are neighbors!

Pessimism is Everywhere & It’s at an Extreme.

I cannot tell you when cooler heads will prevail, just that they will one day. I’m sure you have seen all the charts and data showing how cautious and outright pessimistic investors, small businesses and even corporations are becoming. It’s a dangerous game our leaders are playing but the stakes are quite high if they push this too far. Therefore, we should expect they understand the risks too and will manage them accordingly. Here’s a few examples showing the FUD today.

The CNN Fear & Greed Index: Current Reading, Extreme Fear.

This indicator measures 7 important indicators and rolls them into a score. It’s a very low number today, historically a decent spot to start adding to stocks if you have some time. Like most sentiment indicators, only at extremes are they useful as a timing tool.

AAII Sentiment Survey: Current Reading, Extreme Bearishness.

This survey has been around for many decades. It helps to measure how positive or negative investors are, likely biased by current market activity. At the extremes, this bearish view has tended to be a wonderful contrarian buy signal.  It’s very rare to see 60% bearishness and <20% bullishness. Historically, these periods offered solid forward returns. Again, having time is important, things can always get more extreme before they get a lot better.

Stock Breadth Washout Signals

One of the ways we measure washouts is knowing what % of the stocks in the S&P 500 and Nasdaq are currently trading above the 20-day moving average. Generally, if under 20% of stocks are trading over the 20day, there’s a decent buying opportunity. Sometimes, volatility and uncertainty are so high, breadth can get fully washed out. I expect that to happen in today’s climate as no end in sight seems visible for these tariff and economic slowdown possibilities The current situation feels a lot like Q4 2018 to me and breadth got to <5% on the Christmas eve low. If we see this kind of extreme reading again in the next month or two, close your eyes and buy some quality stocks, we certainly will with eyes wide open.

Today, March 14, 17% of stocks are trading above this short-term moving average. AKA, we could have more selling until we get fully washed out if politicians keep pushing this odd approach.

Bottom line.

On a day-to-day basis, markets can be volatile. News headlines, earnings, political actions, and plenty of other items can whip-saw our portfolios. The more short-term term we focus, the more angst we can generate. Angst puts pressure on our emotions and emotions make us make irrational decisions. The best advice I can give anyone who invests is this: If you try to wire your brain to be opportunistic when the masses are filled with fear and be cautious when others have euphoria, you will become a very good investor.  Over the long-term, your portfolio will look like the green line, in short periods of time, it can look like the yellow line. Today we focus on yellow, but do not lose sight of the green!

Important Disclosure: The above data is for illustrative purposes only.  This information was produced by Accuvest and the opinions expressed are those of the author as of the date of writing and are subject to change. Any research is based on the author’s proprietary research and analysis of global markets and investing. The information and/or analysis presented have been compiled or arrived at from sources believed to be reliable, however the author does not make any representation as their accuracy or completeness and does not accept liability for any loss arising from the use hereof. Some internally generated information may be considered theoretical in nature and is subject to inherent limitations associated therein. There are no material changes to the conditions, objectives or investment strategies of the model portfolios for the period portrayed. Any sectors or allocations referenced may or may not be represented in portfolios managed by the author, and do not represent all of the securities purchased, sold or recommended for client accounts.  The reader should not assume that any investments in sectors and markets identified or described were or will be profitable. Investing entails risks, including possible loss of principal. The use of tools cannot guarantee performance. The charts depicted within this presentation are for illustrative purposes only and are not indicative of future performance. Past performance is no guarantee of future results.

The Election Results Are In. The Market Likes the Results.

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Key Summary:

  • Change is coming to Washington, there will be ramifications for investors.
  • The over-arching theme is a more pro-business, less regulatory environment.
  • Inflation & interest rates staying higher continues to be the base case.

Very Important thesis: If equities generate roughly ~10-11% a year over time, leading brands, dominant global franchises, particularly those serving the dominant driver of the economy, in theory, should compound at 13-15%+ over time. In a world where rates and inflation will likely trend higher for longer, business models with pricing power, exposure to quality factors, and that generate strong profits and free cash are set up to win versus broad markets. Brands Matter.

Election Uncertainty Has Passed.

Even though we have all been inundated with the hard data showing equity markets generally do not care whether a Democrat or Republican is in the White House, market participants were still on edge as we headed into Tuesday’s election. We will have a new President on January 20, 2025. As an investor, it’s nice to know what we should expect from President Trump, because we have seen the movie before in 2017 – 2021. Apart from the early part of the Pandemic period, the economy and stock markets generally performed well. I remember this period well and there were wonderful active trading opportunities along with solid buy-hold opportunities. Each period is different, and the future always looks different than the past but here’s what worked best the last time Trump was president: Between the inauguration January 20/2017 and just before the pandemic on 2/27/2020, The S&P 500 rose 57.9% as the baseline for a comparison. The Nasdaq 100 rose 96%, technology stocks rose 115%. The Consumer Discretionary sector was the second-best performing sector at +62%.  Large Cap Growth was the best performing style box at +84% followed by Mid-Cap Growth. Like the recent past, Small-Cap Value was the worst performing style box +13%. Energy stocks were the worst performing sector -17%.  Based on today’s reaction to the elections, the Financials could be a top performer, but one day does not a trend make. FYI, Financials have been leading all year as well.

Using AI via ChatGPT, I thought I would have some fun with cartoons to tell the story of what the market thinks about Trumps win. As I write this note, equity markets are hitting all-time highs with some very powerful moves across financial services and smaller, leveraged companies. My crystal ball is no better than anyone else’s but here’s what the market believes across certain themes where a Trump presidency is concerned.

The DNC Seems to Have Gotten Off-Course

The information I have currently says Trump won the popular vote and the electoral vote. The last time this happened for a republican was 2004 I believe. This is not a political statement; I try to stay out of politics. The DNC seems to have gone incredibly off course and has lost touch with the average American. That cost the Democrats dearly in this election.

Consumer Sentiment Should Improve

Election uncertainty is just one reason consumer sentiment has been lower than the stock market might indicate. With a Fed marginally cutting rates over the next 12 months and with the knowledge of tax cuts not being reversed plus other potential initiatives that could incentivize them to spend more broadly, consumers could be in a better mood heading into 2025.  Remember, more spending is good for GDP and consumer stocks.

Trump Likes to Be in the News Daily

Like him or loathe him, Trump understands branding and we should expect him to continue his quest to be in the news almost daily. With algo’s driving daily volume on stock exchanges, everyone should expect bouts of volatility at the single stock and sector level on a frequent basis. This is wonderful for active trading, which is part of our 3-step investment process: Offense, Defense, Special Teams (fast twitch trading).

The Regulatory Environment is Going to Improve.

When one handbag and apparel brand isn’t allowed to be acquired by another similar company, you know the regulatory environment is restrictive. Corporate M&A is about to heat up. Private equity M&A and monetization’s should heat up. The brands related to this eventuality were on fire today. Corporate executives have been holding back from inorganic growth strategies because of onerous restrictions and regulations. Everything from anti-competitive behavior to same industry mergers and acquisitions have been stifled by the FTC and DOL. There’s a likely marketable improvement coming in corporate actions as the new administration inserts a less restrictive group of leaders.

The IPO & M&A Markets Could Roar Back

Because of a restrictive DOL and FTC, M&A advisory and IPO’s have seen below-trend growth for many years. With a Republican controlled government, we are set for a less restrictive regulatory environment which could drive economic growth to re-accelerate.

Interest Rates Are Reaching for the Skies.

Interest rates are up >20% since the Fed cut rates in September. Who saw that coming? With a massive budget deficit and higher funding costs, interest rates have been rising to account for rampant spending by the government. Whether Elon Musk can help Trump cut costs remains to be seen but for now, rising rates is not the friend of your bond portfolio or your bond proxy stocks. We should all expect interest rate volatility to stay elevated for longer. Perhaps that’s why so much money is moving to Private Credit funds? That’s why we have loved Blackstone, KKR, and Apollo for many years.

Re-accelerating Growth Should Push Inflation Up from Here.

Everyone loves economic growth and prosperity. With a less regulatory environment, more potential M&A and IPO’s, tax cuts that stick around for longer and potentially new, creative stimulus efforts, and a Fed that’s cutting rates, the potential risk of inflation re-asserting itself is not insignificant. While we do not believe inflation will heat up meaningfully, the rate of change going forward could be enough to cause consumers to stay in the “trade down and save” mentality. Our stock selection is certainly focused on this theme through the brands that offer consumers the best value, highest quality and differentiation.

Disclosure: The above data is for illustrative purposes only.  This information was produced by Accuvest and the opinions expressed are those of the author as of the date of writing and are subject to change. Any research is based on the author’s proprietary research and analysis of global markets and investing. The information and/or analysis presented have been compiled or arrived at from sources believed to be reliable, however the author does not make any representation as their accuracy or completeness and does not accept liability for any loss arising from the use hereof. Some internally generated information may be considered theoretical in nature and is subject to inherent limitations associated therein. There are no material changes to the conditions, objectives or investment strategies of the model portfolios for the period portrayed. Any sectors or allocations referenced may or may not be represented in portfolios managed by the author, and do not represent all of the securities purchased, sold or recommended for client accounts.  The reader should not assume that any investments in sectors and markets identified or described were or will be profitable. Investing entails risks, including possible loss of principal. The use of tools cannot guarantee performance. The charts depicted within this presentation are for illustrative purposes only and are not indicative of future performance. Past performance is no guarantee of future results.

Thematic Investing Can Add a Ton of Value to Portfolios

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Key Summary:

  • Earnings season has begun, we have some solid reports across the brands universe.
  • Streaming video & entertainment has become a consumer staple. Netflix wins.
  • In the asset management industry, private markets are where the information advantages are real. Blackstone wins.

Very Important thesis: If equities generate roughly ~10-11% a year over time, leading brands, dominant global franchises, particularly those serving the dominant driver of the economy, in theory, should compound at 13-15%+ over time. In a world where rates and inflation will likely trend higher for longer, business models with pricing power, exposure to quality factors, and that generate strong profits and free cash are set up to win versus broad markets. Brands Matter.

Earnings Season Has Begun. Here’s a few portfolio brands executing well.

I love earnings season. Each quarterly report is a new piece of the puzzle, and it lets us know what management teams are thinking about their respective businesses, industries, and the economy in general. Remember, our investment in stocks is a De facto vote of confidence on the economies in which we invest. Earnings, revenue, margins, free cash flow, and the growth of these important metrics is what drives stocks up or down over time. As someone who invests but also likes to actively trade when markets act irrational, earnings season tends to offer some wonderful tactical trading opportunities along with offering great, long-term information for buy-hold investors. The next few notes, I’ll discuss some earnings reports and secular themes we are very excited about for the future.

Image created in 10 seconds using AI via ChatGPT. Very cool!

Netflix: NFLX

Remember when the cable industry was one of the most stable and predictable industries?

Legacy media brands sat by and let a new company, Netflix carve out a new market and take market share slowly, then all at once. Fast forward to today, Netflix is now the new cable and the first place most consumer begin their entertainment and content search. This nuance is a massive behavioral moat for Netflix, and I never hear anyone talking about it. Netflix reported a strong and stable quarter on October 17th and the stock is +10% on the 18th, last I checked. Here’s why we continue to like Netflix and why it’s a core holding as a dominant Mega Brand and a consumer staple.

The Report & Our View of the Stock:

Lots of growth potential around the world. 283 million paid subscribers headed much higher over time. Q3, revenue +15% YOY, operating margins 30% vs 22% last year. For Q4, they forecast 15% revenue growth and expect paid net additions to be higher than this quarters 5.1M sub growth. For 2025, they forecast revenue of $43-44B which is +11-13% growth, slower than 2024 but we expected this to moderate as password sharing opportunities diminish. Margins should continue to rise over time as content spend stays stable and revenue and free cash flow expand. And make no mistake, Netflix has solid pricing power to raise prices and drive more ad-tier subs. This business has become a solid consumer staple that adds significant value to a consumer’s life as a primary entertainment provider. The low cost of the service keeps churn low and engagement solid. Live sports and sports-related content will continue to grow bringing in new entrants. NFLX had the benefit of building a massive library of content fueled by debt when rates were largely at ZERO while peers in the industry sat idle and watched NFLX take their businesses. Now they are scrambling to compete in a world with much higher cost of capital and higher content costs. All in all, Netflix offers one of the best value propositions to consumers, has become THE place consumers start their content and entertainment searches which keeps churn low and pricing power high. This is a very powerful flywheel that grows over time with new and intriguing content added.  Traditional consumer staples grow much less, do not generate this kind of profitability and margins and trade at the same multiple or higher as Netflix. More and more, consumer staple brands do not just live in the staples sector. With technology at the center of our lives, there are plenty of tech staples located in plain sight. Yes, tech and communication services stocks can be volatile, but just because their stock can be volatile, do not assume their business is volatile so when these staples go on sale, they are wonderful buying opportunities.

Blackstone: BX

The democratization of alternatives via private market access continues. Blackstone is the largest alternative asset manager on the planet at $1.1Trillion and growing assets at a rapid clip. The crazy part: there is so much room for growth ahead, particularly in the wealth management industry as most HNW investors have very little exposure overall. Here’s a crazy truth: these stocks are very under-owned and underrepresented in indexes, ETF’s, and active funds. And they have been massive alpha generators over the S&P 500. Apollo still needs to be added to the S&P and it’s a matter of WHEN, not IF.

The Brands portfolio owns a basket of the leaders because the secular growth opportunity remains enormous. Blackstone, KKR, Apollo and these brands are the smartest investors around the globe, have massive access to capital in good times and bad, have a wicked information advantage because they each own hundreds of private companies that give them the ability to look around corners for future trends. And they have hundreds of billions in dry powder to buy assets when they go on sale. No matter what the calamity, these great investors always seem to find a way to capitalize on turmoil. Stable, attractive performance just drives more asset flows which drives higher fee revenue which drives the stocks higher.

Like Netflix, the alts business is a wonderful flywheel and the benefits compound over time at scale. Just remember, these stocks can be volatile at times, so you often get a chance to buy them on dips. We love to hold the core position and trade around the position, using the vol to our advantage.

The Report & Our View of the Stock:

Overall, a solid quarter with solid trends for a good 2025. Massive $40.5B new flows this quarter dominated by private credit & insurance but good overall flows into Infrastructure, core PE, plus good fund raising in other real estate and opportunistic credit funds. Management fees $1.7B. Deployed $34B broadly across credit, PE, RE but credit was the big deployment area. Performance stable and solid across fund verticals, with real estate slowly recovering.  $1.17T in assets with $171B in dry powder, so they have massive opportunities to put a lot of money to work over time and to generate solid fees that grow over time. 2025 is expected to show better realizations, and deployments as M&A heats up and sentiment gets better leading to more deals. Their deployments continue to be focused on data centers globally, AI, software, life sciences, and shelter opportunities along with renewables and energy. All of which tend to be solid inflation beneficiaries as rates are expected to stay elevated with elevated inflation.

Image created in 10 seconds using AI via ChatGPT.

Disclosure: The above data is for illustrative purposes only.  This information was produced by Accuvest and the opinions expressed are those of the author as of the date of writing and are subject to change. Any research is based on the author’s proprietary research and analysis of global markets and investing. The information and/or analysis presented have been compiled or arrived at from sources believed to be reliable, however the author does not make any representation as their accuracy or completeness and does not accept liability for any loss arising from the use hereof. Some internally generated information may be considered theoretical in nature and is subject to inherent limitations associated therein. There are no material changes to the conditions, objectives or investment strategies of the model portfolios for the period portrayed. Any sectors or allocations referenced may or may not be represented in portfolios managed by the author, and do not represent all of the securities purchased, sold or recommended for client accounts.  The reader should not assume that any investments in sectors and markets identified or described were or will be profitable. Investing entails risks, including possible loss of principal. The use of tools cannot guarantee performance. The charts depicted within this presentation are for illustrative purposes only and are not indicative of future performance. Past performance is no guarantee of future results.

 

Investing in Big Rivers is a No-Brainer, Common Sense Decision.

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Key Summary:

  • There is no other broad market theme bigger than global consumer spending.
  • The easiest and most defendable allocation decision is to add consumer exposure.
  • The equal-weight Consumer Discretionary basket continues to outperform Staples.

Very Important thesis: If equities generate roughly ~10% a year over time, leading brands, dominant global franchises, particularly those serving the dominant driver of the economy, in theory, should compound at 13-15%+ over time. In a world where rates and inflation will likely trend higher for longer, business models with pricing power, exposure to quality factors, and that generate strong profits and free cash are set up to win versus broad markets. Brands Matter.

Don’t Ignore a $50+ Trillion Theme in Your Portfolio.

The U.S. is a roughly $28 trillion economy and a leader in innovation across sectors. Thank heavens the bulk of our portfolio is tied to the #1 economy in the world. Whether we realize it or not, our investment decisions and our home bias make us reliant on the U.S. economy. Staying up to speed on the core driver of the economy is a very important factor when managing U.S.-centric portfolios. Holding one or a few dedicated investments in this theme makes that easier. As I’ve written many times, our economy is consumer-spending focused. Spending on needs and wants is in our DNA which makes investing in this theme not only logical but highly profitable. One belief I have stated over and over: If the S&P 500 returns about 10% long-term, the best companies, the dominant franchises operating across important industries should compound greater than the market overall. It’s these companies where our team focuses 100% of our time. I used the +13-15% annual returns as an internal benchmark for leading brands over full market cycles. This is what we should expect and what the data has shown long-term.

The chart below simplifies the opportunity for investors by showing how important the consumption component of GDP is in America. Retail Sales alone is about $7 trillion a year. Consumers spend across a variety of “needs” categories as well as “wants” categories. We invest in leading brands across both needs and wants. Additionally, we are a service economy so roughly two-thirds of GDP comes from services and small businesses. Fun fact, household consumption drives every major economy making a global brands allocation an easy core equity choice for allocators. The consumption in the U.S. accounts for about $18.9 trillion per Morgan Stanley and it grows 2-3% each year with alarming predictability. Even a global pandemic cannot stop us consuming for very long. Just to put an exclamation point on this statement, very few investors have sufficient exposure to the brands dominating across important consumption categories. ETF’s are under-exposed, active funds are under-exposed, and retail investors who chase momentum in tech are wildly under-exposed to iconic consumer brands. That’s the opportunity. Adding important exposure to stocks that are superior operators, have global sales opportunities, and have stellar long-term track records is an easy decision.

Market Health Update: Discretionary is Outperforming Staples (defensives).

Most investors invest in sectors via ETF’s and funds. It’s important to compare the major ETF’s and market cap weighted strategies with equal-weighted strategies because sometimes, the most popular ETF does not tell the whole story in a sector. Monitoring the equal-weighted indices across discretionary & staples is vital to understanding the strength or weakness underlying the real economy. Remember, having this knowledge will help you across all the investments you hold given how reliant everything is to our economy.

The discretionary sector struggled as did all growth and quality-oriented areas of the market in 2022. That was a classic re-set and a raging opportunity to add exposure. About mid-year 2022, something happened, discretionary stocks vs staples stopped underperforming and began to outperform. This tends to happen after big market dislocations, beta begins to outperform low vol. The chart below shows a ratio chart of the equal-weight discretionary vs staples performance. When the line is rising, discretionary stocks are outperforming defensives. The rising line highlights the markets appetite for risk-taking and the overall health of the economy. For now, it’s clearly saying more positive things than you might hear from the media.

Market-Cap Weighted Investments Are Masking Underlying Strength.

Important: most assets across all sectors and index investments are invested in market-cap weighted strategies. That’s been helpful at the index level and has led investors astray when analyzing the consumer stocks. Here’s how the market-cap weighted sector strategies look vs the bullish equal-weighted ones. The chart shows discretionary stocks still under a downtrend but threatening to break over the downtrend.

If I saw this chart and it was a stock, I would say the direction is inconclusive until a clean break of the downtrend line has been accomplished. Clearly, this chart tells a different story than the one above which screams, offense over defense generally across consumer stocks. Both are performing but one is performing better than the other.

SUMMARY:

The over-arching message these ratio charts are telling us: broadly, the consumer stocks are performing better than defensive staples which remains a bullish sign for the U.S. economy and therefore equity markets today. And remember, algorithms and zero-days to expiration index options drive daily market volume so if you are engaged in equities, you must absorb the daily volatility they create. We like to use this volatility to our advantage with fast-twitch active trading when we see the opportunity, which offers a unique and differentiated edge in today’s volatile world.

A reminder about our approach: 1) Offense (discretionary, tech, communication services, and alternative asset managers), 2) Defense (staples, healthcare, holding excess cash), and 3) Special teams (active, fast-twitch trading which can offer multiple years of a company dividend in less than 30 days of risk exposure when executed properly).

Disclosure: The above data is for illustrative purposes only.  This information was produced by Accuvest and the opinions expressed are those of the author as of the date of writing and are subject to change. Any research is based on the author’s proprietary research and analysis of global markets and investing. The information and/or analysis presented have been compiled or arrived at from sources believed to be reliable, however the author does not make any representation as their accuracy or completeness and does not accept liability for any loss arising from the use hereof. Some internally generated information may be considered theoretical in nature and is subject to inherent limitations associated therein. There are no material changes to the conditions, objectives or investment strategies of the model portfolios for the period portrayed. Any sectors or allocations referenced may or may not be represented in portfolios managed by the author, and do not represent all of the securities purchased, sold or recommended for client accounts.  The reader should not assume that any investments in sectors and markets identified or described were or will be profitable. Investing entails risks, including possible loss of principal. The use of tools cannot guarantee performance. The charts depicted within this presentation are for illustrative purposes only and are not indicative of future performance. Past performance is no guarantee of future results.

A Summer Surge: August 2024 HANDLS Monthly Report

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Summer Surge

After a challenging July that saw investors sell off high-flying technology stocks, buyers returned to the market in August, bidding up risk assets across the board. Buoyed by a slew of tepid economic data, expectations for the Federal Reserve’s September interest rate cut rose to near certainty. This served as a catalyst for equities and bonds alike.

The month kicked off with the July jobs report, which came in at 114,000, significantly below expectations of 185,000 jobs, and a June report that saw 179,000 jobs added to the economy. The weak jobs number increased the unemployment rate to 4.3%, the highest level since October 2021.

The July Consumer Price Index (CPI) report confirmed perceptions of a cooling economy as inflation slowed to 2.9%, the lowest level since March 2021. The Federal Reserve’s preferred inflation measure, the Personal Consumption Expenditures Price Index (CPE), met expectations for an annual increase of 2.5% for the 12-month period ending in July. Core CPE, which excludes volatile food and energy prices, came in at 2.6% for the 12-month period, below expectations of 2.7%.

The bond market welcomed the progress on the inflation front, pushing the yield on the benchmark 10-year U.S. Treasury down from 4.0% at the end of July to 3.9% on the last trading day before Labor Day weekend (bond prices move inversely to yields).

A rebound in technology stocks drove the Core Large Cap Equity category to a 1.6% gain in August. Meanwhile, the Core Fixed Income category gained 1.5% as bond prices benefitted from lower yields.

For the Nasdaq Dorsey Wright Explore portion of HANDLS Indexes, interest-rate-sensitive categories remained the big beneficiaries of declining interest rates. REITS and Utilities saw gains of 5.6% and 4.8%, respectively, for August. After a disastrous 2023 that saw significant losses, Utilities are now the top-performing category on a year-to-date basis with a return of 22.1%. As in July, MLPs were once again the worst performer, gaining 0.5% in August, but remain up 18.3% for the year.

HANDLS indexes delivered positive returns across the board in August:

  • Nasdaq 5HANDL™ Index: 2.1%
  • Nasdaq 7HANDL™ Index: 2.6% (1.3x leveraged)
  • Nasdaq 10HANDL™ Index: 3.8% (2.0x leveraged)

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