NASDAQ Down 6 of the Past 7 Weeks, What is Going On? James R. Wigen, CAM® ChFM® CPM® CWM®, Sr. Wealth Manager & Sr. Portfolio Manager, Independent Financial Management

We are noticing a recent decline in the stock market, and there are several reasons for it.

The most recent decline is a reaction to the 10-Year Treasury Yield moving closer to 5%, the exact same scenario we experienced in October 2023, pushing markets lower around 8%.

The stock market has been on a tremendous run since October 27th, 2023, however, we are now seeing some of those gains decline.  At this time, there doesn’t seem to be any reason to be worried, a healthy pull-back from a tired market is to be expected.

Economic data is strong, which is part of the reason the market is moving lower.  Investors are concerned the strong economic data will prevent the Federal Reserve from starting to cut the Federal Funds rate until much later this year.  Most predictions were the Fed would start cutting Spring 2024, and now with recent data that will not happen.

As I stated on my blog late December 2023, the market will go through periods of volatility in 2024, as investors continues to digest economic data, corporate earnings, and forward looking projections from CEOs during earnings announcements.

If we look back to 2007, the market experienced a healthy rise most of the year, even though the Fed actually cut the Federal Funds rate, which means economic data started showing signs of weakness, primarily coming from Consumers falling behind in their credit card, housing and car loan payments.  All seemed fine in 2007, until middle part of October, when the market started crashing, and by December economists were using the Recession word.

At this time, earnings are starting to be announced for the 1st quarter of 2024.  We will quickly learn where the market could be headed based on forward looking statements, and not earnings results alone.

A few important comparisons with 2007 investors should keep an eye on, Consumer Spending & Consumer Debt management.  We are already seeing consumers falling behind on debt payments, maxing out credit cards, and once Buy Now Pay Later payments start showing increasing delinquencies, we may see the market pull-back 10%-20%.  As usual, it’s not if it will happen, it’s always when it will happen that is tough to predict.

As investors, all we can do is stay focused on the data, and stay objective, not allowing a bull or bear bias to impact investing strategies.  Money Market yields are currently offering around 5%, for many of you, that yield puts you very close to the annual return your financial plan indicated you need, to get into and through retirement.  This data should allow you to lower your risk profile within your investment allocations.

Keep up with pre-tax contributions to retirement accounts, because the tax bracket most of you are in, is higher than what you will experience from the market the rest of 2024, especially since the market has had a fantastic run year to date.  Inside your 401k you have a Money Market type investment option, this investment option should be yielding close to 5% right now, and with your pre-tax contributions lowering your taxable income, this combination may be your best strategy the rest of 2024.

Part of the reason the market is down the past few weeks in expectations the Fed can’t cut Fed Funds rate, which means Money Market yields should continue to be around 5% for the coming months.  As the Federal Reserve cuts the Fed Funds rate, the yield on Money Market funds will decline as well.

The jobs report is showing a strong labor force, however, the jobs report and the way the data is collected does not properly showcase GIG workers.  In years past, if I lost my job I would collect $1,200 a month in unemployment, not anymore.  In today’s world, if I lost my job, I would not file for unemployment and collect $1,200 dollars, I would start driving for Uber, Lyft, DoorDash, Shipt or Amazon.

Once I start driving with all of those companies as an Independent Contractor, each of them report a new hire, even though it’s one person driving for multiple companies, and they report multiple new hires.  One person could be collecting income from 4-5 of the companies I listed, at the same time they may be looking for 1 new job that pays them wages similar to what they were earning before they lost their job.

Once they find a new job, many will not contact the companies they drove for and “quit”, they will simply stop driving, and those jobs don’t immediately get taken out of the jobs report.

If you have tens of thousands of people doing this, imagine how the jobs data becomes very skewed very quickly, and gives people a sense of a stronger labor market than what is reality.  Most people think the Covid-19 Pandemic is years behind us, however, how people are living, how data is collected and reported is still a work in progress.

I will update my blogs as the economic and earnings data is released.

If you need a second opinion from your current investment allocations or are looking to work with a new financial professional, please contact me and I will be happy to setup a meeting for us to discuss your current situation.

Contact information, j.wigen@IFManagers.com or 1-855-546-9443.

All the best,
James R. Wigen

 

Investing involves serious risks and past performance is no guarantee of future performance or success.  This is not an offer to buy or sell securities and nothing contained herein should be interpreted as a recommendation regarding any investment or investment strategy.  Before making any decision to invest, first read the relevant disclosures and important information provided to you.

Please take the proper risk for your current situation and get the advice from a financial professional who clearly understands your current & future goals and objectives.

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