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Market Volatility

Michael Humphreys CFA® CAIA®

Market corrections are stressful, but they can create opportunities. At Avrio, we are here to help you navigate the turbulence and remain on track to reach your life goals through actions such as account rebalancing, tax loss harvesting, and Roth conversions. The keys to remember during times of volatility are: remain aware of behavioral biases, do not panic sell, and try not to pick the market bottom. As Peter Lynch said, “Far more money has been lost by investors trying to anticipate the correction than lost in the corrections themselves.”

Market Background

August 6, 2024, is already being referred to by many as Japan’s Black Monday, a reference to the infamous Monday of October 19, 1987, when the DJIA fell 22% in one trading session (Wiki Authors 2024). Over two consecutive trading days, the Nikkei 225 dropped 18.2%, contributing in a material way to a 2.91% fall in the S&P 500, a 3.43% correction in the Nasdaq, and a 8.4% pullback in the Stoxx Europe 600 (Kurtenbach 2024). Japan’s retreat was the final straw in an unsteady market already confronting high valuations, mixed earnings calls, and negative economic data. Please see the below bullet point summary of recent events. 

United States

  • The recent US jobs report showed 114K new jobs were added in July, which is well below the estimate of 175K
  • Unemployment rose from 4.1% to 4.3% 
  • Inflation is receding, with the TTM based rate at 3.0% vs. 2023 rate of 3.4%
  • The US Federal Reserve was expected to reduce the short-term rate in July but instead pushed the decision to September. Analysts were widely expecting a 25-basis point downward revision, but following recent market turbulence, some economists are calling on the Fed to consider a 50-basis point cut. 

Japan & China

  • Bank of Japan (BOJ) raised the short-term policy rate to 0.25%—the largest hike in 15 years, possibly with more rate increases to follow.
  • The rate raise is a move to strengthen the yen and combat inflation above 2.5%.
  • The BOJ will also taper its monthly bond buying.
  • China reported sustained deterioration in its manufacturing PMI, falling to a 5-month low of 49.4 (Cash, n.d.).  A number below 50 is considered bearish. 
  • China reported Q2 2024 GDP growth of 4.7%, failing to meet analyst projections. 

Eurozone

  • The Eurozone reported second quarter economic growth of 0.6%, up from the previous quarters 0.3%. 
  • Broadly, Eurozone unemployment remains low.
  • Economists are hopeful that inflation will continue to recede, with the European Commission expecting a drop to 2.7% by 2024 and 2.2% by 2025.
  • Investment growth continues to be an area of concern, especially in the housing sector, where new home construction is down. 
  • Both the EU and UK have begun cutting rates.

Over the course of every investors’ lifetime, there will be market ups-and-downs. This is natural and should be expected. It is important to have a financial and investment plan in-place to effectively navigate these periods of volatility. This is a key factor in achieving short, medium, and long-term goals and successfully navigating your financial life.


Sources:

Wiki Authors. 2024. “Black Monday (1987).” In Wikipedia. https://en.wikipedia.org/w/index.php?title=Black_Monday_(1987)&oldid=1238774988.

Kurtenbach, Elaine. 2024. “Nikkei Plunges 12.4%, Logging Its Worst Two-Day Decline in History.” Japan Today. August 5, 2024. https://japantoday.com/category/business/Nikkei-logs-its-worst-two-day-decline-in-history.

Cash, Joe. n.d. “China’s Weak Factory PMI Exposes Pain Points in Export Juggernaut.” Accessed August 6, 2024. https://www.msn.com/en-us/money/companies/chinas-weak-factory-pmi-exposes-pain-points-in-export-juggernaut/ar-BB1qW3yI.

This material is intended for educational and informational purposes only. It is not intended to provide specific advice or recommendations for any individual. Additionally, you should consult with your Financial Advisor, Tax Advisor, or Attorney on your specific situation. The views expressed in the material are that of the author and do not necessarily reflect those of any market, regulatory body, State or Federal Agency, or Association. All efforts have been made to report or share true and accurate information. However, the information may become materially outdated or otherwise rendered incorrect due to subsequent new research or other changes, without notice. The author nor the firm are able to always verify the content from third-party sources. For additional information about the firm, please visit the MAS Website at https://www.mas.gov.sg/  and the SEC Website at www.adviserinfo.sec.gov. For a copy of the firm's ADV Part 2 Brochure, please contact us at info@avriowealth.com.