Economic Storm Clouds Are Moving In, Still NO Time For Panic
Over the past few weeks, we have learned economic data is showing signs of consumer spending declines, and corporate profit outlooks coming down.
Fast Food chains now offering meals around $5, Walmart announcing they see consumers spending less on items over $10, and corporations taking down revenue expectations for 2024. In addition, we are hearing late payments for cars, homes, and credit cards are all Increasing.
Home sale listings are increasing too, even with 3% mortgage rates many owners enjoy. Why is this happening, it all leads to consumers have simply lost the battle from high inflation over the past 2 years.
We recently learned Lamborghini waiting list has gone from 18 months, to ZERO months, as interested buyers can grab a car off the lot right now. You may be thinking, who cares about people who can afford Lamborghinis, but it shows consumers spending less at Walmart, late payments on essentials, and high-end buyers all showing signs of spending exhaustion.
This does not mean a recession is around the corner, it simply means a Stock Market at All-Time Highs may need to take a break for a few months. Money will move out of Top Tech stocks, find a short-term home with Value stocks, and come back to Top Tech stocks after a brief pull-back.
Money rotates from sector to sector because most Mutual Fund companies and many Asset Management firms are not allowed to move out of Stocks and into Money Market Funds, more than 5% of the fund asset level.
Many Financial Advisors managing Discretionary client accounts generally won’t move client assets to Money Market Funds because they can’t justify charging clients management fees to sit in Money Market Funds, therefore, they find Large Cap safe companies to invest in for a short period.
It’s not unusual to see the market cool down in the Summer and Decline from August to Mid-October. As the slow period of the year for many publicly traded companies is third quarter, and those earnings are released early to Mid-October. History shows the best returns from the Stock Market happen between Mid-October to Mid-April.
Technology sector has allowed the S&P 500 Index to perform very well in 2024, and we should see a short Tech sell-off in the next couple months. Even as a Tech sell-off is likely, AI related companies, Semis, Software, and Hardware stocks should see a very strong recovery to the end of 2024.
As job layoffs will increase, corporations will take those payroll savings and increase spending to automate their processes, leading to relying less on humans and more on Technology moving forward.
Over my 28+ year career, we have seen this happen during every economic downturn, and we are starting another downturn right now. Remember, 18 months after the Fed Funds Rate goes above 5%, we have seen the economic storm clouds move in much faster over the past three decades. We can never predict the severity of the storm, but a storm is coming.
November 2024, is the 18th month since the Fed Funds Rate went above 5%.
Individual Stock Selection becomes much more important during these economic slowdowns, rather than own Index Funds or Mutual Funds with hundreds of stocks within the fund. These type of investments contain stocks which represent a wide range of sectors, and when that is the case, it becomes much more challenging to grow your portfolio.
Contact me if you are interested in a portfolio review. Fees depend on size of your portfolio, time it will take to review your holdings, and whether you want a detailed plan for future growth or income.
J.Wigen@IFManagers.com
Best of luck to all of you!
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