Dougherty Dispatch: July 2024 and part of August
It’s a good thing I didn’t write the dispatch on August 1st. We would have missed the bumps and spills in early August.
The first thing our clients should do in digesting recent market activity is to re-read our previous dispatch, our six-month review. We talked about the 24% increase in 2023 and 15% increase so far this year and that “we have already well exceeded” the historic 10% annual average for markets. We also pointed out that “investment trends historically change” and that favorable “sectors in the economy rotate based on economic and investor cycles.”
Ugly August?
August is notorious for dips. And, after big rises, stocks normally take a dip. If there is at least a 10% dip, it is called a correction.
A few major factors influencing the markets on Monday: One, there was a report Friday that unemployment claims were higher than expected. Over the weekend, based on its markets opening earlier than ours, the Japan markets went way down based on the unemployment data and on Japanese currency activity. This contagion spread to our markets by the time they opened on Monday morning. Separately, it became more widely known that investor Warren Buffett is selling a chunk of his Apple stock. Amateur investors interpreted that as a vote from Buffett that the economy was sinking. To the contrary: His investment in Apple had grown to over 50% of his entire investment portfolio, which greatly exceeds any professionally managed fund. It should never have gotten that high and it was about time he sold some of it off—in our humble opinion.
There are also headlines about recession today. Economically, a recession is when the economy has negative growth (shrinks) for two quarters (six months) in a row. We’re not there. But, again, as we said in the previous dispatch, “Warrant Buffett likes recessions: It’s a good time to go shopping!”
Volatile Trading
Our markets these days have a combination of factors that cause some wild swings. One is the easy computer access that retail investors have to news and trading. Social media and news outlets have space to fill, and they love exciting headlines. Upon hearing these headlines, many people can instantly trade right on their telephone—while having lunch at Panera Bread or riding on an elevator. Another factor is that large managers of funds, such as hedge funds, pensions, and other mutual funds, have computer programs that decide when to sell and buy. We’ve talked about this before. When there is a bit of good news, the programs say buy, buy, buy. And then, with bad news, sell, sell, sell.
For all these reasons, it is foolhardy and amateurish to attempt to do short-term trading or “restructuring” in the middle of day-to-day turmoil.
In 1987, the stock market dropped 23% in two days. In the 2008 period, the stock market dropped 50%. In March of 2020, at the depths of the Covid crisis, the market dropped 25% in one month. Contrast the last 30 days: we’re down 5.7% and still up 10.4% since January 1.
Remarkably, from the Covid crisis level in 2020, the stock market index is more than 105% higher today. The market has always rebounded, not 25% of the time, not half the time, but every single time.
The Answer May Be Closer Than You Think
In addition to receiving questions from our clients about investments, we also receive inquiries about miscellaneous issues, such as gifting money to others, trust and estate planning, senior living transitions, credit protection, and marriage financial strategies. We welcome this opportunity to discuss all types of things. In addition, let us remind you that the book John wrote, Your Financial Guide For Financial Success, covers all these topics (and more!) in greater detail than a telephone conversation can and should be a first step in exploring solutions. Then, as a next step, talk to one of our advisors to confirm and explore aspects of the issue. Also, John recently published an updated edition of the book to account for various law and tax changes. It is available on Amazon, Kindle, or just call the office for a copy.
As always, we love to hear our readers’ reactions.
The Dougherty Investment Advisors Team
Past performance does not guarantee future results.