July and August have been tumultuous for the markets. The stock market in general was down for the month, but it was more pronounced for technology stocks. The ups and downs have been driven mostly by “The Magnificent Seven”. It sounds like the title of a spaghetti western, but these tech-oriented companies have pulled the market up as people have gotten more excited about AI (Artificial Intelligence), and have sold off more dramatically when investors worry about the health of the economy.
As with most market storms like the one recently, there were several factors that increased the velocity of declines:
- The Japanese market was down 10%
- Weak jobs data was reported by the Bureau of Labor Statistics
- Warren Buffett sold half of his stake in Apple (a Magnificent Seven company)
- The US market had been getting more expensive
In response to the market’s declines, investors were clamoring for the Fed to take heed of their suffering, and to hold an emergency meeting to lower interest rates. In fact, many “experts” believe the Fed should have already started lowering interest rates to help borrowers, the economy, and ultimately the stock market. Then the Fed met and said they may lower rates in September, later than many investors would like.
While this market storm was underway, a real storm in the form of Hurricane Debby was approaching. Storms gather momentum as they sit over the ocean and spin. Debby hit Florida with a fury and people were surprised by how much damage it brought. And like so many storms of this magnitude, the people hurt the worst were largely those living in homes that weren’t built or were ill-equipped to handle hurricane-force winds and storm surge.
There will be storms, financial and real, and we rarely know far in advance when they are going to hit. And unlike homeowners in coastal Florida who may have difficulty reinforcing a home to withstand a hurricane, investors have easy to implement strategies to help their portfolio withstand a market storm. These include diversifying our portfolios, buying quality companies and having the wherewithal to stay invested through good and bad times. In doing so, we face the challenges of life with our head up.
There will always be a Debby and a decline on the horizon. Let’s make sure we are ready.
~ Steve Davenport, CFA