July Market Highlights: Tech and AI Drive Growth

The sudden burst of stock market volatility in early August caught many by surprise, but what was equally surprising was how quickly it subsided. For investors, especially those focused on long-term growth, events like these can be unsettling. However, volatility is a natural part of the market cycle, and understanding how to navigate it can be key to achieving long-term success. Volatility and Emotion: Preparing for the Inevitable Volatility can often stir up fear among investors, but it’s important to remember that it’s a normal occurrence in the market. As long-term investors, anticipating volatility can actually be a tool for success. Knowing that market fluctuations will happen allows investors to mentally prepare for the emotional rollercoaster that often accompanies these events. Instead of reacting to the daily headlines or market movements, a long-term investor stays focused on broader trends and goals. For instance, despite the market's initial drop in early August, a rally quickly followed, showcasing the resilience of the U.S. stock market. Is a Pullback in the Cards? While the risk of a market pullback always looms, the broader indexes, such as the S&P 500, have been on an extended upward trajectory. In 2023 alone, the S&P 500 posted a yearly return of 24.23% (26.44% with dividends), and as of August 28, 2024, the index saw a year-to-date return of 17.29%. Given these substantial gains, a pullback might seem inevitable, but it’s important to remember that market corrections can happen quickly, as we just witnessed. Staying the course during these periods is essential for long-term investors. Election Year Volatility Election years are notorious for bringing additional volatility to the market, and historically, we are now entering the most volatile period of the year. While conventional wisdom might suggest that election years lead to heightened uncertainty, the data shows that the S&P 500 has averaged a 7% gain during U.S. presidential election years since 1952. It’s important to note that major market disruptions, such as the 2008 financial crisis, were driven more by economic factors, like the subprime mortgage crisis, than by the election itself. Understanding the broader economic picture is crucial for investors during election years. Pullbacks Can Create Opportunity For those who are prepared, market volatility can offer unique opportunities. If you have additional capital sitting on the sidelines, a market pullback might provide a chance to buy assets at lower prices, which could benefit your portfolio in the long run. Think back to the market crash during the 2008 election year or the COVID-19 pandemic in 2020. Those who remained calm and invested during these periods were able to reap significant rewards in the following years. It’s about maintaining a long-term perspective and resisting the urge to panic. Diversification: A Cushion Against Volatility Diversification remains one of the most reliable strategies for managing market volatility. Spreading investments across various asset classes can help cushion the impact of market swings. For example, industrials outperformed the tech sector at the end of August, while bond prices appreciated as yields dropped. By maintaining a diversified portfolio, investors can ensure that they are well-positioned to weather volatility, no matter which sectors are in or out of favor. A Final Thought  Long-term investing has historically outperformed short-term market trading. With careful planning and a focus on diversification, volatility can become an advantage rather than a threat. At Benson Wealth Management, we are always here to help you navigate these complexities and ensure that your financial strategy is aligned with your long-term goals.

S&P 500: Rally Resumption The major U.S. equity market indexes resumed their impressive rallies in May, with the S&P 500 leading the charge. This broadest measure of the U.S. economy clawed back all of the consolidation from April and closed at a fresh monthly high. Marking six out of the last seven months in the green, the S&P 500 experienced its best May since 2009, adding 4.80%. Alongside this, the Nasdaq 100 rose by 6.28%, and the Dow Jones Industrial Average increased by 2.30%. For long-term investors, these gains reinforce the robust health of the equity markets. Tech Leads the Way May was particularly strong for the technology sector, with major players such as Microsoft, Apple, Nvidia, Alphabet, Amazon, and Meta accounting for 76% of the S&P 500's gains. The information technology sector exhibited notable strength towards the end of the month, showcasing a solid earnings season. Among the S&P 500 sectors, the information technology sector reported the third highest earnings growth, led by companies like Nvidia Corp, Broadcom, Fair Isaac and Company, and Super Micro Computer. Fed Meeting: Impacts and Outlook The Federal Reserve kept the federal funds rate unchanged at 5.25% - 5.50% during their May 1st meeting, as anticipated. The Fed's statement emphasized that reducing the target range would not be appropriate until there is greater confidence that inflation is moving sustainably toward 2 percent. Following the meeting, the S&P 500 experienced a slight dip but quickly recovered, as markets were buoyed by Fed Chair Jerome Powell’s hint that a rate hike would not be the next move. This sentiment helped stabilize the markets as the month progressed. Earnings Surprises Attention shifted to Q1 earnings season after the Fed meeting catalyzed a low for the S&P 500 on May 1st. By May 31st, 98% of S&P 500 companies had reported their earnings, with 78% delivering a positive earnings per share (EPS) surprise and 61% reporting a positive revenue surprise. Companies like NVIDIA, Alphabet, Amazon.com, Meta Platforms, and Microsoft were significant contributors to the overall earnings growth, providing a much-needed boost amidst ongoing inflation and high interest rates. Consumer Moods and Inflation Data Consumer sentiment showed mixed signals in May. According to the University of Michigan Surveys of Consumers, sentiment dropped by about 13% compared to April, reflecting inflation concerns. However, subsequent consumer confidence data indicated an improvement, with the index rising to 102.0 from April's 97.5, surpassing the forecast of 96.0. The Consumer Price Index (CPI) data revealed a slight easing in consumer inflation for April, with a 0.3% increase from March and a 3.4% year-over-year increase. Encouragingly, the Core CPI showed a 3.6% year-over-year rise, the lowest since April 2021. The markets responded positively, with the S&P 500 reaching a record-high close on the day of the CPI data release. The Producer Price Index (PPI) data indicated a 0.5% rise in April, surpassing estimates, with services pricing contributing significantly. Despite initial unease, stock index futures remained nearly flat, but stocks rose following the CPI report, aligning with market expectations. Strong Labor Market Data The April employment data, released on May 3rd, showed an increase of 175,000 payrolls, below the estimated 240,000. Surprisingly, this was seen as positive, potentially strengthening the case for future rate cuts. The unemployment rate edged up to 3.9% from 3.8% in March, further fueling optimism for softer upcoming inflation data. Fed & the Future As of the end of May, there was a 99.9% probability that the Fed would leave rates unchanged at the June 12th meeting and a 14.5% chance of a rate cut at the July 31st meeting. The highest probability for a rate cut surrounds the September 18th meeting, with a 53.9% chance at the end of May. The Takeaway May featured a resumption of rallies for major stock indexes, solid corporate earnings, slightly lower interest rates, and varying economic data, all contributing to a favorable market environment. As June began, the S&P 500 was riding high on the momentum of a significant rally on the last day of May. Whether this signals more to come remains to be seen as the month unfolds. For more insights and personalized financial advice, consider reaching out to Benson Wealth Management INC. Our team is here to help you navigate the ever-changing financial landscape with confidence.