Stocks Decline Again
Weak labor market data and uneven earnings weighed on stocks as the S&P 500 and the NASDAQ fell for the third week in a row and the Dow snapped a four-week string of gains. The sell-off intensified on Friday, and the downturn left the S&P 500 5.7% below the record high that it achieved on July 16; the NASDAQ was in a correction, down 10.0% from its July 10 record.
Stocks fell sharply on Friday after U.S. jobs growth slowed for the third month in a row and the unemployment rate rose to the highest level in nearly three years. July’s gain of 114,000 jobs came in below expectations and was far short of the 12-month average of 215,000. The unemployment rate rose to 4.3% from 4.1% the previous month.
The U.S. Federal Reserve again held off on cutting interest rates, but stocks climbed after Chair Jerome Powell said that an initial reduction could be on the table for its next meeting in mid-September if inflation continues to ease. The Fed also pivoted in its updated policy statement, which suggested that officials are attentive to concerns about labor market weakening in addition to inflation risks.
The shifting interest-rate outlook and fresh economic data fueled a price rally for government bonds, sending the yield of the 10-year U.S. Treasury bond to around 3.80% on Friday to the lowest level in eight months. Yields of 2- and 30-year notes also fell sharply for the week to levels not seen since late last year.
The biggest technology companies reported uneven results as earnings season moved past the halfway point. As of Friday, FactSet reported that analysts were expecting S&P 500 companies overall to post an 11.5% second-quarter earnings increase compared with the same quarter a year earlier, based on results released so far and projections for companies that haven’t yet reported. Entering earnings season, the projected growth rate was 8.9%.
While the U.S. Federal Reserve kept its key interest rate unchanged on Wednesday, two other central banks shifted their policies, with one cutting rates and the other raising them. The Bank of England cut its key rate for the first time in four years, while the Bank of Japan raised its benchmark rate, citing concerns about weakness in Japan’s currency, the yen.
Source: John Hancock Investment Management
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Fear mongering is elevated today with headlines around the movement in the stock markets. History shows that despite the ups and downs of the market, staying invested is still the best way to grow wealth and achieve financial goals over the course of decades.
Stocks never move up in a straight line, so how we react to market volatility is perhaps more important than the volatility itself. The S&P 500 has now experienced its second 5% or worse pullback this year. As the accompanying chart shows, this is below the average of 4 to 5 pullbacks experienced in the average year, and the dozens during bear markets.
Additionally, current market concerns driven by tech stocks, the Fed, and the labor market all have their silver linings. The economy is still quite healthy, corporate earnings are still growing, and if interest rates do sustainably fall, many other parts of the market could benefit. As in past episodes of volatility, seeing past the current market moves and headlines is needed to benefit from the long-term trend.
This second chart is one of our favorites and shows how volatility in prices is a normal part of investing. The average year sees a significant intra-year drop. However, most years still end in positive territory, especially when including dividends. Historically the S&P averages nearly a 14.2% intra-year drop while producing positive returns 75% of the time.
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Before 1972, only amateur athletes could compete in the Olympics. For example, in 1913, Jim Thorpe’s Olympic titles were stripped from him because Thorpe had been paid to play semi-pro baseball for two seasons. (Eventually, his gold medals were reinstated.)
Olympic amateurism rules became less stringent during the latter decades of the 20th century and, by the 1990s, the rules were mostly eliminated. Today, athletes from many countries receive a bonus if they earn a spot on the Olympic podium. For example, the United States awards bonuses of $38,000 for a gold medal, $23,000 for silver, and $15,000 for bronze. Many countries offer far larger bonuses, reported Lee Ying Shan of CNBC. Here are a few:
- Hong Kong, which has won 13 Olympic medals in total (when this was written), pays a bonus of 6 million Hong Kong dollars (~US $768,000) for a gold medal, HK$3 million for silver (~US $384,000), and HK$1.5 million for bronze (~US $192,000).
- Singapore, which has won five Olympic medals in total (when this was written), pays a bonus of 1 million Singaporean dollars for a gold medal (~US $745,000), SG$500,000 for silver (~US $373,000), and SG $250,000 for bronze (~US $186,000).
- Indonesia, which has won 37 Olympic medals in total (when this was written), pays a bonus of 5 billion Indonesian rupiah for a gold medal (~US $300,000), Rp2.5 billion for silver (~US $150,000), and Rp1.2 billion for bronze (~US $75,000).
Other countries that offer a triple-digit U.S. dollar bonus for gold include Israel, Kazakhstan, Malaysia, and Spain.
You may not be an Olympian, but you can reward yourself for your hard work by saving and investing for the future. If you would like to learn more, get in touch.
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AJ Advisors
www.ajadvice.com
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Phone: (615) 709-8709
Fax: (615) 505-3306
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John Stauffer, CFP®
Partner
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Andrew Quinn, CFP®
Partner
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