Down days, discounts, and the long game
Based on feedback from my clients, I decided to put recent news about the equity marketplace into perspective.
I start with my conclusion in case you don’t have the time or inclination to read further:
I do not believe that downward movement in the markets in early August represented a permanent devaluation event in equities. I have no intention of selling one share of stock my clients own. In fact, in times like this, I am a buyer.
In the words of Warren Buffett: "Whether we are talking about stocks or socks, I like buying quality merchandise when it is marked down."
Let’s talk about what has recently happened. The July Jobless Report, which was released August 2, showed the actual jobless rate was 4.3% instead of the expected 4.1%.
That was it!
Traders immediately interpreted this data point and expanded this into a contention that a soft landing will not occur, and a recession is now on the way.
Consider the following:
The jump in the unemployment rate was more from people looking for jobs, rather than people losing their jobs. The labor force participation rate — the share of working age people who are working or are seeking work — rose to 62.7% from 62.6% in June. The healthcare sector added 55,000 jobs, followed by the construction industry, which added an additional 25,000 jobs.
Unemployment naturally increased as we finally moved away from the post-pandemic hiring frenzy. History has shown that maintaining a sub-4% unemployment rate on a national basis is unsustainable over a long period of time.
Fearful of igniting inflation again, the Fed has yet to cut rates. Fed Chairman Jerome Powell has made it clear that he has his finger on the button of an interest rate decrease. If you want to see market prices move upward, let him make the actual interest rate cut and watch what happens to the value of your equity portfolio.
We do not believe that whoever is running for office will have any effect on the current price of the equity market.
Long-term macro trends are still very positive for equities. Interest rates will trend downward, the artificial intelligence movement is in the second inning of what will be a long game, and unemployment at whatever levels you want to believe are still at historical lows.
Corrections are part of normal equity cycles and help to restore objectivity. "Air coming out of the bubble" is normal.
Investing in equities is a long-term process. We invest in quality companies whose value should increase over long periods of time. If you have funds, now is a time to be buying at a discount.
At Delta, we are diligent about managing our clients' portfolios and explain why we do what we do. If you’d like to learn more about our investing strategies and how we can help you, please reach out.