Recap | Week Ahead | Sell-Off! — CRA Financial, LLC

“You can’t always get what you want. But if you try sometimes, you just might find, you get what you need.” – The Rolling Stones

Last week's market recap:

The S&P 500 closed the week down -2.05%. Year-to-date the index is up 12.99%
NASDAQ closed the week down -3.34%. YTD the index is up 12.20%
U.S. Aggregate Bond index was up 2.43%. YTD the index is up 3.21%
10-Year Treasury Rate decreased, ending the week at 3.80% down from 4.20% the prior week (Huge move for 1 week!)
- Fed Funds Target rate remains at 5.25-5.50%
The 1-Year Treasury is yielding 4.20%
A 6 Month Treasury is yielding 4.72% (Prepare for CDs and savings account rates to drop)

The week ahead:

Service Sector Data
Earnings: Eli Lilly, Disney, Uber, Palantir, and more

What is the Sahm Rule?

The Sahm rule says, if the 3-month average jobless rate is a half percentage point above its lowest point over the previous 12 months, the economy is going into a recession. An easier way to say this is… if the jobless rate is rising somewhat fast, then a recession is coming. The Sahm rule has accurately forecast every U.S. recession since the 1947. Friday’s weaker Jobs report technically met the criteria to trigger the Sahm Rule.

The Sahm Rule does NOT need to be correct this time just like the inverted yield curve didn’t project a recession. We are still climbing out of a post-covid economy with wonky statistics. The current unemployment rate of 4.3% is below the long term average of 5.69% and most economists consider between 3-5% as a reasonable jobless rate.

Volatility is Back:

In the past 2 weeks, the S&P 500 is down -5.6% and the Nasdaq is down -9.5%. These numbers look like they’ll be worse after today. Most investors don’t want this, but if you zoom out your time horizon, larger intra-year declines happen just about every year. Expect to see big swings in both directions over the coming weeks. It may feel like a very long 6 weeks until the next Fed meeting.

Part of the Fed’s mandate is to “promote maximum employment.” After the weaker than expected jobs report, the Fed Funds futures market is now reflecting a 99% chance of a .50% rate cut in September, with 6 total cuts in 2024. This is a MASSIVE swing since April 30th when the Futures Market was pricing in 1 cut in 2024. Markets see the Fed as far behind the curve. This is dragging equity valuations lower and bond yields are moving lower (bond prices are going higher).

Inflation is cooling. Unemployment is going higher. GROWTH IS SLOWING, BUT WE’RE STILL GROWING. THIS IS WHAT THE FED WANTED. We’re heading to normal!

Many investors may want to use this volatility as an opportunity add to equities, add quality companies, and harvest tax losses.

Source: JP Morgan Guide to the Markets

As always, let us know if you have any questions.

Best,

CRA Investment Committee

Matt Reynolds CPA, CFP®

Tom Reynolds, CPA

Robert T. Martin, CFA, CFP®

Gordon Shearer Jr., CFP®

Jeff Hilliard, CFP®, CRPC®

Joe McCaffrey, CFP®

Phillip Tompkins, CFP®

Important Disclosure Information

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by CRA Financial, LLC [“CRA]), or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from CRA. Please remember to contact CRA, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. CRA is neither a law firm, nor a certified public accounting firm, and no portion of the commentary content should be construed as legal or accounting advice. A copy of CRA’s current written Disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.crafinancial.com. Please Note: If you are a CRA client, please advise us if you have not been receiving account statements (at least quarterly) from the account custodian.

Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your CRA account holdings correspond directly to any comparative indices or categories. Please Also Note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be more or less volatile than your CRA accounts; and, (3) a description of each comparative benchmark/index is available upon request.

Please Note: Limitations: Neither rankings and/or recognitions by unaffiliated rating services, publications, media, or other organizations, nor the achievement of any professional designation, certification, degree, or license, or any amount of prior experience or success, should be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if CRA is engaged, or continues to be engaged, to provide investment advisory services. Rankings published by magazines, and others, generally base their selections exclusively on information prepared and/or submitted by the recognized adviser. Rankings are generally limited to participating advisers (to the extent applicable). Unless expressly indicated to the contrary, CRA did not pay a fee to be included on any such ranking. No ranking or recognition should be construed as a current or past endorsement of CRA by any of its clients. ANY QUESTIONS: CRA’s Chief Compliance Officer remains available to address any questions regarding rankings and/or recognitions, including the criteria used for any reflected ranking.