Hi there – Given the recent market volatility, I wanted to reach out and provide some context on what we are seeing and what it could mean for your portfolio.

Key Points to Consider:

1. Market Reaction vs. Economic Reality: There has been a sharp selloff in risk assets globally, but it is important to note that this appears to be due to a small number of weaker-than-expected data points, rather than a fundamental shift in the economic outlook.
2. U.S. Growth is Slowing, Not Stopping: Recent data has shown some slowdown in manufacturing and job growth. However, slowing growth does not necessarily mean negative growth. While the unemployment rate has ticked up to 4.3% from 4.1% last month, it still remains well below the long-term average of 5.69%. This suggests that despite some cooling, the job market remains relatively strong by historical standards. [Source: YCharts]
3. Interest Rate Expectations: Market expectations for Federal Reserve rate cuts have increased dramatically. Most economists/analysts now anticipate the Fed cutting rates in September followed by a second cut prior to the end of the year.  
4. Bonds as Portfolio Diversifiers: In a positive development, bonds have recently rallied as stocks have sold off. This return to negative correlation between stocks and bonds reinforces the value of bonds as portfolio diversifiers.
5. Global Interconnectedness: Recent events, including geopolitical risks and policy changes by the Bank of Japan, have contributed to a global decline in risk appetite. For example, we saw a 12% sell-off in Japanese equities on Monday.
6. Earnings Perspective: Despite the recent volatility, it is worth noting that U.S. equities have exited their earnings recession. The current Q2 reporting season is showing double-digit EPS growth (12%), led by healthcare (29%) and information technology (20%) sectors.
7. Technical Factors: Some of the recent price action may be driven by technical factors and systematic investors, rather than solely fundamental changes. This can sometimes lead to short-term market movements that do not necessarily reflect long-term economic realities.
8. Remember that market volatility is a normal part of investing. Historical data from 1928-2022 showed that 95% of years saw 5%+ pullbacks, and 63% had 10%+ declines. However, it is important to note that in the long run, the vast majority of these pullbacks were temporary, with markets typically recovering and moving higher over time. [Source: A Wealth of Common Sense]

Source: BlackRock, Bloomberg. Metrics, rationale, and levels of concern are determined by iShares Investment Strategy research and analytics. Level of concern is generally determined using historical recession levels, on average. For illustrative purposes only. As of August 05, 2024.

Key Events to Watch:

• Annual Federal Reserve Jackson Hole meeting on August 26
• NVDA earnings on August 28
• Weekly unemployment claims
• Fed communications on economic growth and interest rates

While volatility can feel unsettling, it is important to maintain a long-term perspective. Market timing is notoriously difficult and often counterproductive. Remember, your financial plan is designed to weather market fluctuations. While we are closely monitoring the situation, we believe the fundamentals remain largely constructive for long-term investors.

If you have any questions or concerns about your specific situation, please don't hesitate to reach out. We are here to help you navigate these market movements and make sure that your financial strategy remains on track.

Certus Wealth Management