Keys to Navigating Market Volatility

Market volatility can be unsettling, especially when you see your investments fluctuating day by day. However, staying calm and sticking to a well-thought-out strategy can help you navigate these turbulent times effectively. Here are some key steps to consider when dealing with market volatility:

• Remember the Big Picture: Markets go through cycles. Even after big drops, they tend to bounce back. Stay focused on your long-term goals instead of short-term swings.
• Diversify Your Investments: A well-diversified portfolio, including a mix of stocks, bonds, and cash, can help mitigate the impact of market volatility and help reduce your portfolio’s risk.
• Check-in and Rebalance: Take a look at your investments now and then. Make sure they’re still aligned with your goals and risk level.
• Look for Opportunities: Market downturns can present opportunities to buy quality investments at lower prices. If you’re in a position to do so, consider adding to your portfolio during these periods of volatility, taking advantage of the potential for long-term growth.

Market volatility is an inherent part of investing, but by staying disciplined and focused on your long-term objectives, you can turn these challenging periods into opportunities for growth.

Jeff Wetta, RPS and Dustin Jackson, CFP® RICP®
Managing Partners

Your Market Update

Market strength continues with added volatility

Equity markets remained positive year-to-date as of August 26th, despite the volatility from July continuing. In fact, August got off to a rough start. The S&P 500 was down 2.9% on the first Monday, in part due to news stories focused on a possible “hard landing” for the economy. It’s our view that high technology valuations also factored into the rough start. However, by the 26th of August, the S&P 500 was up 1.9%, the tech-heavy Nasdaq was up 0.9%, and the slower-growing companies of the Dow Jones Industrials were up 1.2%.

Earnings mixed but solid overall

We are now mostly through second-quarter company earnings season and have received guidance for the upcoming quarters. As mentioned previously, earnings growth is an important part of this year’s equity rally. Growth was solid in the first quarter, up 8% and second-quarter earnings look to be up 10.8%. Projections for the calendar year are for an 11% earnings growth rate and it’s anticipated that much of this will be led by technology companies.  So, we are well on our way to meeting or exceeding expectations.

August economic data

On August 14th, the Bureau of Labor Statistics released the CPI report for July where it was reported that headline CPI rose by 2.9% year-over-year vs. a 3.0% increase in June. These favorable numbers have increased the odds of a September rate cut.

The prospect of a rate cut started a “rotation” into value-oriented stocks and small- and mid-cap stocks in July, but this paused as market volatility picked up. By some measures, the gap in valuations between mega-cap stocks and small-cap stocks is the highest since the late 1990s and some rotation was due. Whether this will be ongoing or not is unclear and depends, in part, on how the next batch of growth-oriented stocks reports their earnings and guidance.

The Bloomberg U.S. Aggregate Bond Index (the AGG) also benefited from the prospect of rate cuts.  As of August 26th, the AGG was up 1.9% month-to-date and 3.6% year-to-date. At mid-year, the AGG was still down 0.7%, so this was a positive turnaround for traditional fixed income.

Overall, despite increased volatility and some worries of a harder-than-expected economic landing, markets remain broadly positive for the year. Year-to-date as of August 26th, the S&P 500 was up 18.8%, the Nasdaq was up 16.4%, and the Dow Jones Industrials was up 10.6%.

To Sum Up

Our view for 2024 remains positive – the market volatility in July and the beginning of August has not derailed this. Going forward, our base view remains that the economy will continue to grow slowly and steadily, with pockets of weakness that are the result of the Fed’s engineered effort to fight inflation. September will likely bring rate cuts, and we are evaluating whether the rotation into value- and small-cap equities will continue. That said, we are more favorable on small- and mid-cap stocks than we were earlier in the year.

We acknowledge that market volatility has increased, but such volatility may present buying opportunities that we are on the lookout for. We have incorporated the relatively full equity valuations into our analysis and exercise care as we watch for these buying opportunities and build out our portfolios.

Some other factors we will be considering as we make our way through the second half of 2024 include employment data and the presidential election. For now, markets seem laser-focused on earnings, potential for recession, residual inflation, and potential rate cuts though. Generally, a buy-and-hold strategy while remaining properly positioned should help drive solid returns and manage risk.

Sevasti Balafas, CFA, CPWA®
CEO & Founder
GoalVest Advisory

Sources: JP Morgan Asset Management, Bureau of Economic Analysis, Bureau of Labor Statistics, Morningstar, Factset, Slickcharts, Yahoo Finance, and Ycharts

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