After three weeks of losses, stocks reversed course again with a nice bounce. Perhaps it’s just a technical bounce, or maybe investors are thinking corporate profit reductions will not be as bad as previously anticipated?
I would vote for the technical bounce, as it’s a little premature to forecast how the Fed’s aggressive reactive ways will truly impact corporate profits. Corporate profit projections are being guided lower, however we’re still early in the game.
Stock indexes rose last week with the Dow rising 2.72%, the S&P 500 3.68%, the Nasdaq Composite 4.14%, and the Russell 2000 4.07%.
Over the pond was not as positive, with foreign stocks inking out a gain of .89% and emerging market stocks down (.13%).
Oil continued its current path closing at $86.79, down from $89.58 the week prior.
The 2-Year US-Treasury finished last Friday with a yield of 3.57% and the 10-Year yield at 3.32%.
The big news this week shockingly, is the inflation print for August (just a little sarcasm). On Tuesday morning, we’ll hear the Consumer Price Index (CPI) print for August. Last month, the headline number came in at 8.5% with the core, stripping out food and energy, at 5.9%. On September 21st, we will hear how much higher the Fed will raise rates. The market is banking on .75%, which has been clearly telegraphed.
Another important event, albeit somewhat under the radar, is the Freight Railroad labor union contract. The labor contract actually expired in 2020, and two years of negotiations have not yielded any results. In July, the Biden administration called for a 60-day cooling off period and appointed a Presidential Emergency Board to come up with a compromise. The railroads have until 9/16 to accept this government compromise.
I certainly hope they reach an agreement and do not strike. We definitely need our railroads moving freight from producers to end users consistently! One thing is for sure… with an agreement, labor costs will definitely increase (which is of course, inflationary).
Growth Vs. Value
Will Growth or Value stocks finish higher by year-end? Currently, Growth stocks are down approximately 20% for the year. Value stocks are down high single digits. Value stocks are typically considered more resilient during challenging times and have often held up better than their growth counter parts when things get dicey.
Having your stock portfolio evenly split between growth and value is a longer-term sound strategy. This year so far, we have been slightly overweighting value. Back in May/June/July however, we did add back to growth in many of our Portfolio Models, bringing the models closer to parity.
For non-clients, how is your portfolio positioned? If you would like to discuss your position based on the current environment and your specific needs, please feel free to schedule a consultation!