September 3, 2024

A volatile August, which began with a 9% decline, ended on a brighter note with indices near highs. The S&P 500 Index gained 2.4% for the month. Staples (+5.9%), real estate (+5.8%), and health care (+5.1%) were the best performing S&P sectors, while energy (-1.7%) and discretionary (-1.0%) were the worst performing sectors. From a factor view, quality and defensive stocks outperformed in August while large-cap and mid-cap stocks were the best performing market-cap ranges.

Since the early August “growth scare”, the macro data has offered some reassurance: CPI/PPI were cooler than expectations; jobless claims have been stable; service sector activity remains solid; and consumer spending remains resilient. Interest sensitive sectors like housing and manufacturing remain under pressure, but the cavalry is coming. Jay Powell at Jackson Hole stated “Upside risks to inflation have diminished. Downside risks to employment have increased. The time has come for policy to adjust.” The table is now set for a September rate cut with the only question being one of magnitude: 25 bps or 50 bps. However, the financial markets have discounted the Fed’s initial moves with bond yields (2s/10s) down by 40/50 bps, stocks higher, spreads tighter, and the US Dollar lower. In summary, inflation is cooling, the labor market is not falling apart, the consumer is still spending, and the economy continues to expand. The Fed is now your friend again and a soft landing remains the base case.

Stock valuations remain full with the quick rebound from early August. September has historically been a weak/volatile month and there are considerable global as well as domestic uncertainties facing investors. We continue to believe a diversified portfolio of reasonably valued, high-quality durable growth stocks allows ongoing participation in the current bull market while offering superior downside protection amidst any bouts of market volatility that may arise.