This is a new installment in an ongoing series where Marc Bautis, Wealth Manager and Founder of Bautis Financial, comments on hot topics in the financial industry.
It’s been a wild August for markets. Recession fears kicked off the worst selloff since 2022 at the beginning of the month. Then, the markets staged a choppy recovery, even notching the strongest week of the year along the way.
While there was lots of movement, it’s not so surprising. It’s very common for a strong recovery to follow a selloff.
That’s one of the many reasons we recommend not abandoning an investing strategy when markets get jittery. (If you ever feel tempted, please reach out so we can talk.)
What Could Happen Next for Markets?
No one can predict the future, but we do expect more volatility ahead.
Despite renewed recession fears, fresh data seems to have eased investor anxiety and boosted hopes that a recession-free “soft landing” is still achievable. That’s good news for markets, but there are plenty of risks to watch.
Positive Factors That Could Push Markets Higher
- Inflation continues to head downward, which is good news for consumers and supports the case for interest rate cuts this year.
- Retail sales jumped unexpectedly, suggesting American consumers are going better than expected.
- Since consumer spending accounts for about 70% of U.S. economic growth, it’s a big indicator of economic health.
- Analysts currently expect the Federal Reserve to cut interest rates in September.
- Notes from the last Federal Open Market Committee meeting showed that policymakers are close to cutting rates, supporting hopes for a September cut.
Negative Factors That Could Trigger a Selloff
The labor market is showing cracks.
The unemployment rate ticked up in July to its highest level since October 2021, and job growth slowed more than expected.
As you can see in the chart above, job creation has been slowing down over the past two years.
That’s not entirely surprising, since the labor market has been recovering from pandemic disruptions. However, a recently released annual revision of job data showed that the economy added nearly 30% fewer jobs over the last 12 months than originally reported.
If the labor market weakens and Americans start to worry about their financial situation, it could erode consumer confidence and spending later in the year.
The past few weeks have shown us how easy it is for investors to lose their optimism in a selloff, and then quickly gain it in a recovery.
While markets tend to reflect the economy in the medium and long term, the opposing emotions of fear and greed tend to have greater influence in the short term.
We’re seeing a lot of reasons to be optimistic, but we’re also watching some clouds on the horizon. Though it doesn’t seem likely that a recession is here – or even around the corner – we’re monitoring the data and will report as needed.
If you have questions about what markets are doing, we welcome you to book a complimentary consultation with our team of financial advisors using the link below.
Disclosure: Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results.
This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. The content is developed from sources believed to be providing accurate information; no warranty, expressed or implied, is made regarding accuracy, adequacy, completeness, legality, reliability, or usefulness of any information. Consult your financial professional before making any investment decision. For illustrative use only.
