| View this Email in your Browser · Forward this Email to a Friend | CONNECT |  |
 |
 |
|||||
|
|
Diver Down?
By Morgan Christen Many of you may have heard of the band Van Halen’s contract (rider), where they would demand a bowl of M&Ms without any brown ones. People thought this was the act of a spoiled rocker, when in fact it was a way for the band to check on the promoter. You see, the band had a lengthy contract, and they wanted to make sure the promoter was paying attention to details. This was a band that had loads of stage equipment, electronics and let us not forget the era…pyrotechnics. So, if they found brown M&Ms, they would question the entire set up, as the promoter did not read the entire rider. These are proxy measures that meant something to Diamond Dave. |
|
|
The beginning of August marked a change in investor behavior. Markets sold off abruptly, falling to the 10% “correction” territory. For years we have been in an ADD market, with investors quick to sell if narratives change. Investors remain on edge with anything implying a recession. What triggered the sell off? It started with the jobs report at the beginning of the month showing modest job growth in July with an uptick in the unemployment rate to 4.3%. Pundits immediately suggested the Fed should make an emergency rate reduction as the economy was falling into recession. But employment is still quite strong, despite the uptick. Read the entire rider. |
|
|
|
|
Then we had the Bank of Japan raising rates and effectively ending the carry trade. What is the carry trade? Borrowing in the near zero rate Yen and investing in US stocks (for example) that have been on the rise. That did trigger investors in the carry trade to sell off holdings to pay back their borrowing obligations, but that trade has mostly unwound. |
|
|
|
As humans we always look for the reason something happened, and corrections are no exception. Sudden declines like we saw at the beginning of August are not out of the ordinary. Rather, they are quite usual - even when markets are on a positive run. Since 1928, they have occurred an average of once a year. You will see in the chart many years where markets experienced hefty drawdowns, only to end positive those same years. |
|
|
|
|
|
|
|
|
|
|
|
|
|
Conclusion The economy is cooling a bit, and rates have eased. Markets are at highs and investors can be quick to the trigger, but you now survived a correction. For a few days it was not fun, and the talking heads will throw out headlines to fit the narrative. The feedback loop seems to show that we are in a weak economy, while it is actually rather robust. The US economy added roughly 19 million jobs in the past four years, which is all the jobs lost in the pandemic with an additional 1 million more. The Fed will not abandon its focus on inflation, but it will start looking more at employment. |
|
|
Many believe higher rates are good for the economy. Looking at the last GDP report it showed an economy that is strong even with rates higher than in the recent past. Now, if rates were at 10% that would be a different story. When Americans look at their assets today, they can park their emergency funds in a money market and earn close to 5%. Their bond allocations are now earning well above the 1-2% they have seen in 10 years prior to 2022. Looking at stocks, companies now must be critical with their capital outlays as cash is not free. Free cash creates bad things; bad investments, taking on too much risk, and lack of options for savers. Now that all assets are giving an investor a return, there is more money to spend…great for an economy. This will not go on forever, the Fed does not just lower rates for fun, they may see the economy slowing. When an economy slows, companies feel the pain which will be reflected in the earnings. And the cradle will rock. We will keep you focused on what you can control. Saving, allocating, financial planning, estate planning and your withdrawal plans. Do not forget to watch for brown M&Ms. Do not “Jump” to conclusions. Do not forget to look back at your financial plan. Do not forget that we are here to keep you on track and are ready to answer your questions. |
|
|
|
Now Live: |
|
|
We look forward to sharing breaking information with you, only when it matters. If you did not receive a text from us and you are interested in receiving Market Alerts, you can sign up by completing the form here. |
|
|
|
Have You Taken
A quick reality check for your portfolio |
|
|
|
|
Spinnaker Mobile App now Available for IOS |
|
|
|
|
Spinnaker Investment Group is a boutique, family-owned investment advisory firm that helps each investor design, implement and run a portfolio. We work directly with each client to help them realize their financial independence.
© 2024 Spinnaker Investment Group. All Rights Reserved. |
GET IN TOUCH
4100 MacArthur Blvd., Ste 120 |
|
|
|
DISCLOSURES: Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Inflation is typically defined as the change in the non-seasonally adjusted, all-items Consumer Price Index (CPI) for all urban consumers. CPI data are available from the US Bureau of Labor Statistics. Stock is the capital raised by a corporation through the issue of shares entitling holders to an ownership interest of the corporation. Treasury securities are negotiable debt issued by the United States Department of the Treasury. They are backed by the government’s full faith and credit and are exempt from state and local taxes. The indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is no guarantee of future results, and there is always the risk that an investor may lose money. Diversification neither assures a profit nor guarantees against loss in a declining market. The information contained herein is based on internal research derived from various sources and does not purport to be statements of all material facts relating to the securities mentioned. The information contained herein, while not guaranteed as to the accuracy or completeness, has been obtained from sources we believe to be reliable. Opinions expressed herein are subject to change without notice. |