LIFE Newsletter August 2024
Navigating Life’s Journey
The goal of our LIFE Newsletter is to bring you a blend of wisdom, financial insight, and philanthropy. Our commitment to enriching lives goes beyond financial advice – we extend our support to meaningful causes, with each featured organization receiving contributions from Abound Financial.
In this edition, as always, you’ll find thoughtful reflections, in-depth investment insights, our ‘Faith in Action’ spotlight on a charity close to our values, and an economic update to keep you informed and prepared.
Together, let’s embrace the path to financial abundance and compassionate action.
Life Lessons
”With me are riches and honor, enduring wealth and prosperity.”
Proverbs 8:18 (NIV)
Investment Updates
Per LPL Research’s Global Portfolio Strategy Report – For complete copy of the report, click here.
INVESTMENT TAKEAWAYS:
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LPL’s STAAC maintains its tactical neutral stance on equities and modest overweight to fixed income, while actively monitoring the stock market’s progress toward establishing a potential durable low. After the sharp August 5 selloff, equities are nearing an attractive entry point.
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Economic growth in the U.S. should outperform other developed markets. Amid headwinds to consumer spending, solid business capital spending is expected to support overall domestic growth, albeit, potentially at below consensus levels. A 2024 recession is unlikely.
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The Committee remains comfortable with a balanced approach to market cap. High-quality small cap stocks are attractively valued, but large cap companies enjoy superior earnings power and tend to outperform late cycle as the economy slows.
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The Committee maintains a slight preference towards large cap growth amid AI-fueled earnings growth, but our technical analysis work has started to turn a bit toward value which remains more attractively valued.
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The STAAC’s regional preference remains U.S. over developed international and emerging markets (EM) due largely to superior earnings and economic growth in the U.S. and significant volatility in the Japanese yen.
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The STAAC continues to hold a strong overweight tilt in preferred securities as valuations remain attractive. However, the risk/reward for core bond sectors (U.S. Treasury, agency mortgage-backed securities (MBS), investment-grade corporates) is more attractive than plus sectors. In our view, adding duration isn’t attractive at current levels, and the STAAC remains neutral relative to our benchmarks.
This research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
Faith in Action
Leading Crisis Response with Compassion: ReachGlobal
Mark and Denise Lewis
Mark and Denise Lewis are missionaries with ReachGlobal. Mark serves as the Director of ReachGlobal Crisis Response, where he leads a team of about 60 people. Their vision is to share the love of Christ in the unique mission field that arises in the aftermath of crises.
Mark transitioned from his engineering career in 2005, moving with his wife Denise and their children—Emily, Kara, and Caleb—to Post-Katrina New Orleans to start this crisis response ministry. He and Denise continue to reside there.
The Lewis’s ministry focuses on investing in disciple-makers to establish the church in areas where the Gospel is not known. This is typically achieved through local church partnerships and long-term crisis response efforts. Their work assists local churches and leaders both domestically and internationally in two primary focus areas:
– Crisis Response: Preparedness, equipping, and response to care for people, meet needs, and multiply disciples in the wake of crises.
– Ministry Consulting and Leader Development: Collaborating with national ministry partners in various areas such as ministry clarity, leadership, coaching, strategic planning, transformational community development, and church planting/church health, among others.
In addition to their global efforts, ReachGlobal has spent several years in Paradise, CA, following the 2018 Camp Fire. They continue to support local families and the community through the local EV Free Church on Pentz Road that were affected by the devastating wildfire.
Left to right is Mark Lewis, a newly baptized believer, and far right is Pastor Yura, one of EFCA’s many local church partners in Ukraine. This was in Kramatorsk, Ukraine, a few miles from the front lines, on a baptism Sunday last July. This church went from 50 members before the war, to about ½ a dozen due to displacement, and now is about 1,000 with 4 services in three locations between Saturday evening and Sunday morning.
Currently, the Lewis’s are primarily engaged in outreach efforts in response to:
– The war in Ukraine
– The earthquake in Turkey
– Refugees and conflict in the Middle East
– Floods in Brazil and Pakistan
– Civil unrest in Haiti
– Typhoons in the Philippines
– Civil war in Myanmar
– Domestic crises, including wildfires in Paradise, Ca, hurricanes in Ft. Myers, FL, and Lake Charles, LA; flooding in rural KY; and a tornado in Greenfield, IA.
If you would like more information or are feeling inclined to give to this cause you can find more information here:
Economic Update
Stocks must have gotten the memo that August tends to be weak historically. July, the eighth positive month in the past nine, was quickly forgotten as the beginning of August greeted us with a selloff. The primary catalyst was August 2’s weaker-than-expected employment report, which ignited concern that the U.S. economy could tip into recession. Several additional factors exacerbated the selling pressure:
- Overly bullish sentiment and elevated valuations. Investor sentiment had become a bit frothy, particularly in the tech sector, and stocks had simply gotten a bit ahead of themselves, as discussed in LPL’s Midyear Outlook 2024: Still Waiting for the Turn.
- Seasonality. The historically weak month of August is a logical time for a selloff to reset investor sentiment to more normal levels.
- Increased scrutiny around the payoffs for artificial intelligence (AI) investments. This scrutiny followed some evidence of slowing consumer demand during second quarter earnings season.
- Leverage in the financial system. Borrowing in the yen (the so-called carry trade) is unwinding as global markets fall and the yen surges — plus some institutional traders appear to have been caught offsides in the downdraft, driving more forced selling.
So, what now? First, this is not the time to panic. Remember, pullbacks and corrections — as painful as they are — are a normal part of investing. Think of them as tolls to pay on the road to attractive long-term returns. The S&P 500 and its predecessor indexes have gained 11.5% annualized since 1950, through some of the worst wars, terrorist attacks, recessions, financial crises, pandemics, and natural disasters in history. And that’s while averaging a drawdown of over 10% per year – even in up years.
Turning to potential catalysts for a rebound, perhaps the most obvious one is the Federal Reserve (Fed). A 0.5% rate cut in September is now firmly on the table, and an emergency, intra-meeting cut, though unlikely, is possible if the economy weakens further. Simply put, restrictive monetary policy is no longer necessary. Expect the Fed to quickly get to a neutral stance, despite the perception that they might influence the election. “Higher for longer” created room for cuts.
Other drivers that could help turn stocks around include better economic data, reassuring commentary from corporate America, and more progress unwinding leveraged trades. Fundamentals still look good enough to keep this bull market going even as the economy slows into the election. Additional downside may be modest, and opportunities may soon emerge, but bottoming is a process. Be patient and allocate wisely.
As always, please reach out to me with questions.
Sincerely,
David Laut
CEO, Certified Financial Planner™
O / 916-846-7780
A / 4180 Douglas Blvd. Suite 200, Granite Bay, CA 95746
Important Information
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
All data is provided as of June 6, 2023.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.
All index data from FactSet.
The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Past performance does not guarantee future results.
Asset allocation does not ensure a profit or protect against a loss.
For a list of descriptions of the indexes and economic terms referenced, please visit our website at
lplresearch.com/definitions.
