Tag: quarterly

Presented by The PensionmarkMeridien Team, October 18, 2024

As we head into the final stretch of 2024, I wanted to offer an overview of key developments that occurred in the third quarter. 

S&P 500: FOUR STRAIGHT POSITIVE QUARTERS

It’s four positive quarters in a row for the broadest measure of the U.S. economy, the S&P 500,with a remarkable seven out of the last eight quarters in the green¹. Long-term investors have been rewarded (and perhaps spoiled a little bit, dare I say!) for the last year or two.

Regardless of the headlines that have come our way for the last eight quarters (think inflation, high interest rates, government shutdowns, etc.), the broader equity indexes continued to climb.

For the third quarter of 2024, the S&P 500 increased by 5.53%,² the NASDAQ 100 rose 1.92%³, and the Dow Jones Industrial Average jumped by 8.21%⁴, as industrials outperformed.

BROAD ECONOMY

Expectations for lower rates combined with declining inflation remain front and center. The Fed highlighted a “recalibration” message at the last policy meeting, tying the rate cut to a need to stimulate the labor markets as opposed to being a response to a struggling economy. 

A 50-basis-point cut is in the books, and the number one question on the minds of the investment community is …

SOFT, HARD, OR NO LANDING? 

The rate hike cycle appears to be over, and the Fed’s intended consequences of quelling inflation have seemingly come to fruition in the form of a slowing labor market. Simultaneously, we have seen inflation drop over the last three months, according to multiple metrics.

Now, the Fed is looking to thread the needle by adding some steam into the labor market, but not too much and not too little — essentially creating a Goldilocks scenario of “just right.”

A recession remains a possibility. But there aren’t too many talking about a recession to start the third quarter, as the fresh rate cut creates loosened-up lending markets and provides a dose of stimulus into the economy.

With that said, it’s October and an election year, so anything is possible.

INFLATION SOFTER FOR THE THIRD QUARTER 

Consumer Price Index: June consumer pricing, released in July, actually fell on a monthly basis, with data showing a 0.1% monthly decrease from May, two ticks lower than the Dow Jones estimate for a 0.1% monthly increase. 

July consumer price Index data showed continued cooling for the month, with the annual inflation rate slowing to 2.9%. The interest rate cut case became more likely.

Finally, August Consumer Price Index data revealed a 0.2% increase in monthly CPI, resulting in an annual increase of 2.5% — the lowest annual inflation rate since 2021 and a 0.4% decline from the previous month. These data releases helped cement the inflation-cooling theme as markets waited on the September Fed meeting, which resulted in a 50-basis-point cut. 

AUGUST VOLATILITY SPIKE 

While the quarter was positive yet again, it wasn’t without some volatility early in the quarter – and what a volatility spike that was. Even more to marvel at was the speed of its dissipation.

The Japanese Yen carry trade⁵ wreaked some havoc on world financial markets in early August. The effects were felt worldwide but were short-lived. 

After spiking above $60⁶, the S&P 500 Volatility Index ($VIX) settled the first week of August’s trading near $20.37. This volatility spike will go down in history books.

LABOR MARKET CONCERNS

As mentioned, labor market concerns popped up in a big way in the third quarter. There were substantial revisions to previously reported labor market data to the tune of 818,000 jobs revised downward over the preceding 12-month period.

Looking at the three non-farm payroll prints during Q3, we see:

• 206,000 jobs were created in June, in line with estimates, but this is when downward revisions began to the tune of 111,000 downward revisions in April and May.
• 114,000 jobs were created in July vs.185,000 forecast, a sharp slowdown from June data. Unemployment increased to 4.3%, indicating additional slowdown in the labor market as a whole.
• 142,000 jobs were created in August vs.161,000 forecasted. There was a notable spike in unemployment.

EARLY SEPTEMBER VOLATILITY

In response, there was some more market volatility in early September, but this pessimism was short-lived. The Fed cut rates by 50 basis points, and the worries faded to black in the eyes of major stock indexes again — at least for now.

Labor market concerns are valid, especially when factoring in the revisions to previously reported labor market data. But we’ll see if the medium-term effects of the rate cut result in some strengthening of the employment markets in the fourth quarter. 

Could the rate cut result in a pickup in inflation that everyone is feeling is in the rear-view mirror? It’s possible — we will see if the Fed can thread this narrow needle.

FED OUTLOOK 

At the end of third quarter, markets were pricing in a 64.7% probability of a 25-basis-point cut and a 35.3% chance of a 50-basis-point cut at the November meeting, per the CME FedWatch Tool⁷.

There is a general consensus of 50 basis points of further rate cuts in 2024, as suggested by Federal Reserve Chair Jerome Powell himself at a September 30th conference at the National Association for Business Economics. 

Remember, however, that the Fed is heavily data-dependent, so additional CPI prints will be considered. 

TREASURY YIELD NORMALIZATION

After being inverted for the longest period in history (793 days), the 2/10 yield curve finally uninverted/normalized in September. This means that the 10-year yield is once again higher than the 2-year yield at long last.

The 2/10 yield curve normalization has various interpretations, one of which is that it’s a historical indicator of recession. Yet, other interpretations exist.

MOVING FORWARD

The fourth quarter is usually a good one.  But it is still a highly Fed-centric market, with an impending election that will have no shortage of headlines and narratives. But, as long-term investors, we look beyond that.

If headlines dictated market performance, long-term investors wouldn’t be in the position they are in today given the headlines over the last couple of years! Food for thought.

With that said, if third-quarter market developments are on your mind or if there is anything else We can help with, please feel free to contact us at the email address or phone number below.. 

We are always here as a resource for you.

The PensionmarkMeridien Team may be reached at 866-871-9963 or
meridienteam@pensionmark.com

Do you want to receive articles like this or Know someone who could use information like this?
Please feel free to send us their contact information via phone or email. (Don’t worry – we’ll request their permission before adding them to our mailing list.)

Please consult your financial professional for additional information.

This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security.

Citations:

1) Trading View, October 1, 2024
2)Trading View, October 1, 2024
3)CME Group, October 7, 2024
4)Trading View, October 1, 2024
5)Trading View, October 1, 2024
6)CNN, August 7, 2024
7)Trading View, August 11, 2024

Advisory services offered by Pensionmark Financial Group, LLC. Securities offered by Pensionmark Securities, LLC, member FINRA/SIPC. Pensionmark Financial Group, LLC is affiliated through common ownership with Pensionmark Securities, LLC.

Presented by The PensionmarkMeridien Team, July 18, 2024

As we enter the second half of 2024, now is the perfect time to review the last quarter.

Overall, bulls continued to run during the second quarter of 2024 as several major stock indexes broke out of recent trading ranges to the upside. 

Tallying the quarter, the S&P 500 increased by approximately 3.90%¹, the Nasdaq Composite rose by close to 8.1%², and the Dow Jones Industrial Average decreased by nearly 1.7%³.

ECONOMY 

Rewind to the beginning of the year, and the talk of the town was as many as six rate cuts to come this year. Remember that? Well, courtesy of sticky inflation (which has recently shown early signs of potentially softening), the narrative has changed significantly since then. 

Current expectations are for one rate cut in 2024, with the Fed’s ability to cut near the presidential election in question.

INFLATION

The year-over-year Consumer Price Index inflation rate declined in Q2, with the last CPI reading of the quarter showing consumer pricing cooling slightly month-over-month in May and year-over-year inflation running at 3.3%. It is too early to say if the trend will continue, as many market bulls desire. 

Core CPI (which removes more volatile food and energy from the metric) dropped to a three-year low of 3.4% in May, potentially bolstering the case for rate cuts down the line. This metric illustrates just how much the necessities of food and energy contribute to the inflationary pressures here in America.

U.S. equities loved seeing inflation metrics tick lower throughout the second quarter, and the S&P 500 continued to make fresh all-time highs.

LABOR MARKET

Labor markets remained mostly steady to higher throughout Q2, with payroll gains (206,000 in June, 272,000 in May, 175,000 in April) in each month and June and May data beating analyst consensus expectations.

For June, the unemployment rate rose to 4.1%, higher than the estimated 4.0% and the highest level since November 2021. The unemployment rate has inched higher each month for the past three months, potential signs that the Fed’s rate hike crusade has dampened the U.S. economy. You wouldn’t know it by looking at the S&P 500!

QUARTERLY FED EXPECTATIONS 

The second quarter featured two Federal Reserve (Fed) policy meetings. The Fed left rates unchanged both times, in line with market expectations. The result is a current target overnight lending rate of 5 – 5.25%. 

More importantly, the Fed has set expectations that it will cut rates only once in 2024.

In the third quarter, there will be two Fed meetings: July 31st and September 18th. As of early July, markets were pricing a 93.3% probability of no rate cut in July and a 70.8% probability of a 25-basis-point cut in September, per the CME FedWatch Tool⁴.

PRE-ELECTION RATE CUT DEBATE

Even with a 70.8% probability of a Fed rate cut at the September meeting, much controversy surrounds such a cut, as some market participants argue that a cut could bolster the economy and show potential favoritism to the incumbent. This will likely remain a topic of discussion as the time remaining until Election Day ticks down.

TREASURIES

Courtesy of slowing inflation data and Fed rate cut expectations, Treasury yields fell in the second quarter by more than 30 basis points from their April peak, ending the quarter near 4.37%.

As a result, holders of bonds have seen some well-deserved price appreciation since April. The Morningstar Core Bond Index gained 0.17%⁵ for Q2, and high-yield bonds tacked on 1.07% for the quarter, with the longer end of the curve lagging the shorter-term counterparts.

GENERATIONAL OPPORTUNITY IN BONDS?

It has been a rough patch for bond investors, to say the least, but there is hope!

Is it so bad that it is good? Some experts say yes. It has been 46 months since the bond market made an all-time high.

Looking at the Bloomberg US Aggregate Bond Index’s largest drawdown periods from 1976-2024, we can see that this drawdown has reached extreme levels. Should inflation continue to decelerate or decrease, it could be a time when smart money looks to bonds, given the value proposition.

Not as trendy as AI-fueled stocks, bonds do stand the test of time, and there is ample math that supports these fixed-income assets. Some food for thought entering the third quarter!

FORGOTTEN YIELD CURVE INVERSION

The longest yield curve inversion in U.S. history passed the two-year mark on July 7th. Seemingly forgotten as of late, the abnormal phenomenon has historically portended economic contraction or recession, but those who have banked on that thus far have missed a large rally in equities. 

It is election season, so anything is possible moving forward. 

WALL STREET WISDOM DEBUNKED

The classic Wall Street adage of “Sell in May and Go Away” did not transpire in the second quarter — for the second year in a row! 

That’s right. Despite the higher interest rate environment, an inverted yield curve, and seasonality, the S&P 500 was positive for two out of three months in the second quarter. After declining by 4.16% in April, the S&P 500 added 4.80% in May and 3.47% in June, a solid quarter⁶ for the broad market average.

Tech and artificial intelligence (AI) continue to outperform the broader market, and AI-fueled gains were a prevailing narrative once again in the second quarter. 

TECHNOLOGY STRENGTH, MATERIALS & INDUSTRIALS LAG IN Q2

On the subject of AI and tech, below is the overall performance of the technology sector in the second quarter, along with other popular stock sectors and how they fared in Q2 2024.

• Technology: +11.40% in Q2 2024.
• Basic Materials: -5.88% in Q2 2024.
• Communication Services: +9.16% in Q2 2024.
• Consumer Cyclical: -1.20% in Q2 2024.
• Utilities: +4.48% in Q2 2024.
• Industrials: -3.41% in Q2 2024.

DIVIDEND STOCKS LAG IN Q3: TURNING POINT AHEAD?

With the ten-year yield near 4.268%⁷ and, of course, the two-year yield higher at around 4.624%⁸, it is not rocket science why blue-chip dividend-paying stocks have lagged as their trendier tech and AI counterparts have caught massive inflows of investor cash.

But those who have been around the markets for a while know that trends can be temporary, and U.S. giants like Coca-Cola, Disney, and 3M, for example, have stood the test of time and will not be going anywhere anytime soon.

Should interest rates decline, as many expect, dividend-paying stocks could once again come back into favor. We see that defensive sectors like utilities did well in the second quarter — perhaps a sign of things to come.

More food for thought for those seeking further portfolio diversification heading into Q3.

FROM Q2 TO Q3: A SUMMARY

Of course, much attention will continue to be paid to inflation data and Fedspeak. The Fed has broadcast its intentions for one rate cut in 2024, with the CME FedWatch Tool showing current expectations for one in September. The presidential election later this year adds an element of uncertainty to trying to “time” an interest rate cut.

But, putting those two things aside, portfolio diversification and a long-term focus have been the ticket for ages. Some active participants may seek to look outside of tech and AI in Q3 to reduce portfolio volatility, be first in line to some dividend-paying blue chips, and perhaps find happiness in the beaten-up bonds/fixed-income products.

Diversification is the ticket to being a successful long-term investor; timing the market is very difficult, and diversification is much easier.  Moreover, remaining focused on the long term allows an investor to avoid getting caught up in quickly changing narratives that could trigger emotional decisions. 

With that overview noted, if Q2 market developments are on your mind or if there is anything else we  can help with please email or call us at the phone number of email address below.

The PensionmarkMeridien Team may be reached at 866-871-9963 or
meridienteam@pensionmark.com

Do you want to receive articles like this or Know someone who could use information like this?
Please feel free to send us their contact information via phone or email. (Don’t worry – we’ll request their permission before adding them to our mailing list.)

Please consult your financial professional for additional information.

This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security.

Citations:

1) Statmuse, 2024
2) Statmuse, 2024
3) Statmuse, 2024
4) CME Group, July 12, 2024
5) MorningStar, July 1, 2024
6) YCharts June 2024
7) Trading View July 8, 2024
8) Trading View, July 8, 2024

Pensionmark Financial Group, LLC (“Pensionmark”) is an investment adviser registered under the Investment Advisers Act of 1940. Pensionmark and WIA Holdings, LLC (“World”) are affiliated through common ownership with Pensionmark Securities, LLC. Securities offered through Pensionmark Securities, LLC (Member FINRA/SIPC).

Presented by The PensionmarkMeridien Team, April 8, 2024

Stock market bulls were on parade during the first quarter of 2024, as the major U.S. stock indexes continued to extend gains from the final quarter of last year.

With the books closed for the first quarter, I wanted to take this opportunity to offer an update on key developments. 

S&P 500: BEST Q1 SINCE 2019

The S&P 500 found its way to its best first quarter since 2019, extending recent gains to a five-month win streak¹.

The large-cap index and best gauge of the U.S. economy found strength early in the quarter via the AI theme, with NVIDIA contributing to the second consecutive positive quarter for the S&P 500. Some broadening into other sectors was a topic late in the quarter, with the energy and communication sectors finding buyers.

Overall, for the first quarter of 2024, the S&P 500 increased by 10.16%², the Nasdaq 100 rose by 8.49%³, and the Dow Jones Industrial Average saw a rise of 5.62%⁴.

SOFT, HARD, OR NO LANDING?

Soft, hard, or no landing – the question remains whether the Federal Reserve will be able to pull off its inflation-fighting campaign without a recessionary impact. 

U.S. stock market bulls cheered the first quarter as investors gained more confidence in a “soft landing” (tamed inflation but no recession) amid inflation moderation. The prospect of perhaps “no landing” (no recession but persistent inflation) was also considered.

INFLATION MIXED FOR Q1 

Costs of goods and services are still rising annually, albeit at a slower pace than the peak of the recent inflation cycle.

Metrics were mixed⁵ in the first quarter, with consumer inflation picking up in January (December data), easing in February, and then rising in March.

The last Consumer Price Index (CPI) release of the first quarter showed a 3.2% rise⁶ year-over-year versus 3.1 % expected. Inflation is still running hotter than the Fed’s 2% target rate, but the market wants rate cuts. 

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LABOR MARKET 

Labor market resilience, based on government nonfarm payroll data, persisted throughout Q1. First-quarter data showed solid payroll gains (216,000 in December, 353,000 in January, and 275,000 in February) with all three months beating analyst consensus expectations.

The data releases have been strong, indicating economic strength but the initial figures are not quite conducive to the market’s desire for rate cuts. Downward revisions have come to the rescue somewhat.  

“Downward revisions” essentially means changes to the initial data releases in subsequent months. Data shows that the initial numbers have been revised lower for 10 of the last 12 months⁷.

Such revisions can help to bolster the case for Fed rate cuts, indicating a less strong labor market. 

UNEMPLOYMENT RATE

The unemployment rate also showed a mixed picture for the first quarter. However, there was a notable tick higher in unemployment in the last monthly data⁸ release of the quarter, which showed unemployment sitting at a one-year high of 3.90%.

FEDERAL RESERVE (FED) SUMMARY & OUTLOOK

The first quarter featured two Fed meetings, with the Fed leaving rates unchanged in January and March. The result is the same current target overnight lending rate of 5.25 – 5.50%, a 23-year high.

While the Fed left rates unchanged at the most recent March meeting, the Fed did let us know that three 25-basis-point cuts are expected by the Federal Open Market Committee in 2024 via its Summary of Economic Projections (SEP⁹).

Markets loved Federal Reserve Chair Jerome Powell’s commentary at the post-meeting press conference, as all three major stock indices jumped to record high levels. However, on the last day of the quarter, Powell reiterated¹⁰ that the Fed needs to see more good inflation readings before it is ready to cut rates.

At the end of the first quarter, markets were pricing a 95.8% probability of the Fed leaving rates unchanged at the May 1st Fed meeting and a 63.6% chance of a rate cut¹¹ at the following meeting on June 12th. 

One thing we know for sure is that those percentages will change each day.

WHAT IF THE FED DOESN’T CUT RATES?

Anything is possible. Market watchers were looking for six cuts; now, it has been whittled down to three for 2024. Yet, major U.S. stock indexes have risen while the number of cuts expected declined.

Cutting rates with the economy running hot would defy conventional wisdom, and the “this time is different” narrative can be cause for concern for many veteran investors. 

It’s an election year, and the dynamics are multifaceted. We will see what future inflation and job data look like.

WHERE IS THE PULLBACK?

It’s been quite a while since a meaningful pullback in the S&P 500.

Market sentiment was very high in Q1, and what could potentially or ultimately be deemed a rate-cutting delusion is still alive and well, helping to fuel the gains of major U.S. stock indexes.

Nobody can definitively know what will happen with the Fed cutting rates or what the interest rate markets will do on their own.

Market pullbacks are healthy in bull markets, and there hasn’t been one in a prolonged period. Such corrections are more common than most people think.

CRYPTO RISE & VOLATILITY

It was a wild quarter in crypto, with Bitcoin rising 65% in Q1, fueled by spot ETF buying and concepts of tighter supply in Bitcoin coming in April’s halving event.

“The rise in Bitcoin ETFs, coupled with the transformation of Grayscale’s Bitcoin Trust (GBTC) into an ETF structure, has led to a significant surge in assets under management (AUM) for Bitcoin-related investment products,” said¹² Ronen Cojocaru, CEO at 8081.

To begin the second quarter of trading, the mood of the crypto markets soured, and volatility was on full display as the U.S. dollar gained strength, helping to spur selling across many cryptocurrencies.

The prospects of Ethereum ETFs¹³ continue to be discussed.

LONG-RUN PLANNING

If you asked someone well versed in finance three years ago, “What would the stock market do if interest rates went from sub-1% to over 5% in three years”?

Certainly, the overwhelming answer would have been for stock market declines during the rise in rates. These markets tend to defy conventional wisdom time after time; this is why long-term investing is a lifelong commitment with the fruits of time bearing themselves as a result of investor discipline.

With the above quarterly recap noted, we would love to hear how things are going for you. If first-quarter market developments are on your mind, or if there is anything else we can help with, please feel free to email or call us at the number or email address listed below

We are always here as a resource for you!

The PensionmarkMeridien Team may be reached at 866-871-9963 or
meridienteam@pensionmark.com

Do you want to receive articles like this or Know someone who could use information like this?
Please feel free to send us their contact information via phone or email. (Don’t worry – we’ll request their permission before adding them to our mailing list.)

Please consult your financial professional for additional information.

This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security.

Citations:

1) Yahoo Finance, March 27, 2024
2) Trading View, April 1, 2024
3) Trading View, April 1, 2024
4) Trading View, April 1, 2024
5) Trading Economics, 2024
6) CNBC, March 12, 2024
7) Market Watch, March 8, 2024
8) Trading Economics, 2024
9) The Conference Board, March 20, 2024
10) AP News, March 29, 2024
11) CME Group, April  2024
12) International Business Times, April 1, 2024
13) FX Street, April 2, 2024

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Pensionmark Financial Group, LLC (“Pensionmark”) is an investment adviser registered under the Investment Advisers Act of 1940. Pensionmark and WIA Holdings, LLC (“World”) are affiliated through common ownership with Pensionmark Securities, LLC. Securities offered through Pensionmark Securities, LLC (Member FINRA/SIPC).