AUGUST 2024 Newsletter: Perspectives on Market Volatility

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’sMidyear 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.

^{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 August 6, 2024.}

^{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.}

^{Tracking #612201 (Exp. 08/25)}

• The Account View Overview page in our mobile app now has an updated design with a cleaner, more intuitive interface. If you are not using the mobile app, it can be found by searching “LPL Account View“ on the App Store for iOS and Google Play for Android devices. Once downloaded, you can login using your email address and password from when you created your Account View access. You’ll get a text message with a code to register the app the first time you log in.

What's New?

A Sleeker, Modern Aesthetic: Enjoy a more contemporary look that enhances usability.

A Simplified Account Overview: View all accounts on the initial screen without the need to navigate to additional pages.

Enhanced Customization: Customize directly from the Overview page with a new upper right corner dropdown, allowing you to easily adjust what information you see and in what order.

Improved Chart Views: Asset Allocation and Value Over Time charts now expand to full screen, offering a clearer, more detailed view.

• Did you know? Accessed from Account View, the Wealth Vision platform offers you the ability to link data from outside financial institutions to have a consolidated view of your financial life in one safe and secure location. Please see the "Wealth Vision/eMoney" section on our Client FAQ page for additional information.
  
  
• If you have found value in the assistance, the personal bonds, and the trust that you and your advisor have formed, we would be honored if you could take a few moments to share your experience as others have here. To submit a testimonial, please access our convenient Testimonial Submission webpage by entering the code ”8231”.

Is it Time for a Paycheck Checkup?

There's no better time to check your withholding status and make sure your paycheck accurately reflects the taxes you should be paying. These paycheck checkups are a great practice when something happens in your life that may change your tax status, such as getting married or getting divorced, having a baby, getting a new job, or getting a raise or promotion at work. You can also adjust your withholding status if you want to change the tax withheld due to other circumstances.

Other factors can also be checked during your paycheck checkup, such as how much you contribute to your health insurance retirement plan. These expenses can also impact your tax liability.

^{This information is not intended to be a substitute for specific, individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.}

^{Tip adapted fromIRS.gov}

What information should you never share over the phone?

You might receive phone calls from individuals claiming to represent a company or an organization, asking for your personal information. This is a common method used by fraudsters. It's essential never to disclose the following information over the phone:

• Social Security Number
• Bank account or credit card details
• Personal Identification Numbers (PINs)
• Passwords

Remember, legitimate organizations will never ask for these details over the phone. If you suspect a fraudulent call, hang up immediately. Stay safe and secure.

You need to park a car for the weekend. You find a parking space marked “2-Hour Parking M-F, 8am-6pm” with no other restrictions. You call the city and find that overnight parking is allowed on this block. So, what is the maximum amount of time you can leave your car in this space without getting a ticket?

Last Month's Riddle: At a stop sign on a rural road, there are two trucks in front of a truck, two trucks behind a truck, and one truck in the middle of two trucks. How many trucks are there in total? 

Answer: Three