I woke up early this morning to see the after-hours trading markets signaling more large-scale swings (2.5-3% range is what I consider “big” these days). So, yes, after a quiet ride to new a multitude of new all-time highs throughout the first half of this year, the stock market is back to making headlines. There’s a lot of headlines and “talk” going on online, so I wanted to share a few facts about what’s going on.  Then, if you have the time/patience/desire, I provide some words of wisdom and from the heart to consider in all this noise that is likely to be around the rest of the year with volatility and a contentious election.  As a reminder, anytime you have questions or concerns about the market, economy, volatility, your financial plan, please reach out. That’s what we’re here for!

Now, let’s get into it:

• Last week, the Fed decided to keep their target interest rate elevated at 5.25%. Then, Friday rolled around with an unemployment report that showed that data point increasing up to 4.3%. Going back almost 80 years, the long-term average unemployment rate is about 5.70%. We’ve been in the middle of a labor market that has had more job openings than those looking for work. The economy isn’t broken, but it’s getting tighter and something we’re keeping our eyes on.
• The volatility index has hit levels we haven’t seen since Covid and the GFC. However, that doesn’t mean a crash is imminent. The bigger risk is waiting on the sidelines for a crash to come, when it in fact does not and the market continues to rise. Diversification reigns supreme in times of volatility and this is why a portfolio should be comprised of both bonds and stocks. (bonds are positive 3% the past 5 days)
• Warren Buffet is in the headlines about moving a portion of his Apple position to cash and how he is sitting on his largest cash pile in history. These facts are true, but let’s add some perspective… yes, he sold nearly half of his position in Apple, but Apple is still number 1 holding by a large degree. Buffet stated he’ll gladly pay 21% taxes on his gains when he’s historically paid 35%, and even over 50% in his lifetime. Yes, he now sits in his largest cash pile in history, but considering how large his company has become he’s still nearly 85% invested and only roughly 15% in cash. The bottom line, he is still heavily invested.
• What’s Japan have to do with this? In recent history, Japan has kept rates lower and institutional investors have used their lower rates to borrow for their investing domestically. As Japan moves forward with raising rates, these institutions are having to de-lever their borrowed positions by selling equities.
• The “Magnificent 7” is leading the charge in volatility, both on the upside this year and the downside. Last week, on a day when the market was down over 1.00%, over 1/3 of stocks in the S&P 500 were positive. The reason for the massive swings in volatility on the index level is due to the Mag 7 making up such a large portion of its weight. This is why diversification is important and why we’re not overly exposed to the Mag 7. We may miss out on some upside, but when the market has volatility on the downside, we believe our downside risk will be mitigated.
• Did you know market corrections (down 10% or more) happen nearly 65% of all years? The fact that we haven’t had a correction, yet this year is actually more abnormal. Let’s say we have a correction of 10%, the market would still be positive this year. And since the October of 2022 lows, even with a correction this year, we’d still be 45% higher than where we were. It’s all about perspective.
• Lastly, the time to move out of cash is now (and has been for a few months). 5.00% in the money market has felt wonderful, but volatility on the market and economic level is telling us yields on cash are going to be dropping fast over the coming months. Yes, money markets may be yielding 5.00% today, but we can say with almost certainty they will not be yielding that by the end of the year. A move into bonds is extremely prudent if you have money outside of a fully funded emergency fund just sitting.

Over my 21 years doing this, and nearly 30 following the markets, I’ve learned to listen to wisdom from other seasoned advisors, mentors, and my own experience through a few of the largest bear and bull markets with many families.  I have learned also that the fear and scarcity mentality are powerful and it’s important to remember that your past self and many others would be thrilled to be in your exact position today- it’s all relative.  Most of this fear is in our minds, resulting from our own insecurities and upbringing that we allow to dominate our wisdom.  It’s normal, I do this every day and certainly not immune to these feelings, I’ve just learned how to handle them with logical time proven principles.

Bottom line, take a deep breath. Go for a walk. Then, call your financial advisor (yours truly and my amazing team) and talk it out. We mean it. Let’s walk through what this means for you and your financial plan. This is what we’re here for. We build solid financial plans to withstand market volatility and headlines.   As for me, I choose to take care of and love my people, seek guidance, and push out the noise and “expert predictions”, and adjust where needed for our clients.

Any opinions are those of David Adams and not necessarily those of Raymond James. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation.