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- 😰 The S&P 500 Has It's Worst Week of the Year
😰 The S&P 500 Has It's Worst Week of the Year
Let's unpack why, and tips for a potential downturn...
Maxwell Nicholson
September 08, 2024
Table of Contents
TOP STORY
😰 The S&P 500 Just Had Its Worst Week of the Year After a Concerning Jobs Report
🎢 The market’s been on a roller coaster lately, with an August crash driven by the Japanese Yen trade, followed by a quick recovery, then back down after Nvidia’s earnings, but this week marks the worst of the year so far:
🇨🇦 The TSX is down 2.4%
🇺🇸 The S&P 500 is down 4.1%
🤖 The Nasdaq-100 is down 5.9%
⚙️ Semiconductors were hit especially hard, with the SOXX index down 11.8% (its worst week since March 2020) and Nvidia down 13.8%
🐝 So, for today’s buzz, let’s break down the reasons for this drop, how the upcoming interest rate announcements may impact the market, and how to set yourself up for success in volatile markets!
👷♀️ Jobs Report Misses Forecasts, Causing Fears of Slowing a Economy
📑 One of the biggest drivers of this week’s drop was the US jobs report, which showed only 142,000 jobs were added last month, 11% under the 160,000 expected and 30% under the one-year average.
🧐 The reason this impacts markets so much is the Fed is set to announce changes to the interest rates on Sept 17/18, and investors are essentially trying to guess whether the Fed will cut interest rates by 25 basis points (0.25%) or by 50 basis points (0.50%).
As Seema Shah at Principal Asset Management put it:
“For the Fed, the decision comes down to deciding which is the bigger risk: reigniting inflation pressures if they cut by 50 basis points or threatening recession if they only cut by 25 basis points.”
For investors, a higher rate cut would be preferred for a few reasons:
📈 Lower interest rates make it easier for companies to borrow, expand, and grow
🛍️ Lower interest rates boost consumer spending
🌟 Lower interest rates make safe-haven investments (i.e., fixed income) less attractive and stocks more attractive
⬆️ The bad jobs report increased the likelihood of a 50-point cut from 40% to 55% (according to CME FedWatch), which is actually a good thing for investors, but it also made investors worried that it might be ‘too late’ for the Fed to avoid a recession and that the Fed is ‘behind the curve.’
The stakes are high. If they are too slow this time, they might drive up unemployment and tip the economy into recession.”
🤔 Aren’t we in a recession already?
😫 For many, even though we haven’t hit the technical definition of a recession, it sort of already feels like one - with the pain of higher grocery prices, skyrocketing mortgage payments from high interest rates, and more.
🐻 If you want to watch a more bearish take from a commentator walking through signs that the market may already be in a recession, I found this video from a former Nvidia employee turned streamer really intruiging and well-researched.
💡 A few of the most interesting points were:
In 2008, low unemployment was a main argument used to claim the economy wasn’t yet in a recession, but when the economy was finally officially called a recession, analysts said the recession actually started a year prior.
Sometimes, the high-level data doesn’t tell the whole picture - for instance, in California, nearly all the job growth in the past two years has come from the government.
Corporate bankruptcies have soared above the pandemic-era peak and are on track for the worst year since the 2008 Financial Crisis.
🧐 I don’t have as big of a doom and gloom point-of-view as he does, but I like seeing the data and arguments from both sides to form my opinion, and hopefully you do too!
💬 One of the things that stuck out the most was a quote he cites from Jeff Bezos:
When the data and anecdotes disagree, the anecdotes are usually right. If you have a bunch of customers complaining about something and at the same time your metrics show they shouldn’t be complaining, you should doubt the metrics.
💡 Before we talk about some tips for preparing your portfolio for a potential recession/downturn, a quick word from this week’s sponsor, Webull Canada!
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TOP STORY CONTINUED
💡 Tips to Prepare for a Potential Recession
With all the talk of a potential recession in the media, many of you are probably wondering how to best prepare for the worst. Here are two things to consider:
⏰ The Cost of Timing the Market
Trying to constantly reorient your portfolio to beat a looming recession boogeyman or whatever crisis of the day is a mistake.”
🙅 The first major tip is that as a long-term investor, you really shouldn’t be trying to time the market. As much as it’s tempting to react to all the headlines, try your best not to let all the noise affect you.
🗓️ Research on timing the market shows that over a 20-year period from 2003 - 2022, if you missed out on the 10 best days, your returns would be less than half what they would have been if you stayed in the market.
🐻 Interestingly, 7 of the 10 best days actually took place during a bear market!
🚨 Make Sure Your Portfolio Matches Your Risk Tolerance and Time Horizons!
😱 In 2008, the S&P 500 fell 38%.
📈 But over the past 20 years, the S&P has still returned an average of 10.16% per year.
😌 If you’re investing for the long term, the short-term shocks don’t matter so much, but if you were investing in 2006 with the plan to take out your money in 2009 to buy a house, a short-term shock like that would be devastating.
🎯 Make sure your investment portfolio matches your goals and time horizon, and if it does, stick to your plan!
NEW BLOSSOM FEATURES
📲 New Blossom Update: Post Multiple Images, a Big App Restructure, and more!
🌼 This week, we made a few exciting updates to Blossom so if you haven’t already, make sure you download the new version to check them out!
✨ Here are the highlights:
🎆 🌆 🌃 You can now make posts with multiple images!
🎨 We did a big app restructure moving profile to the top left and created a new Insights tab
💡 Topics are back and accessible from the profile modal
🤑 New Learn & Earn video lessons from Harvest ETFs and Guardian Capital
🐞 Over 100+ bug fixes!
To get the complete rundown, plus hear what’s coming next (including some important algorithm changes), make sure you watch my update video!
FROM THE BLOSSOM COMMUNITY
⭐️ Featured Posts this Week
👇 Click to see the full post!
