Market Update, August 5, 2024

This morning's significant global market sell-off is a result of several conditions and situations that have occurred nearly simultaneously. These are a few of the reasons for the volatility:

• Japan raised a key interest rate that negatively impacted hundreds of billions of dollars in "carry" trades that needed to be unwound by major institutional investors - they were once buyers and are now sellers. The Japanese yen has strengthened and the U.S. dollar has weakened, as a result;
• The most recent jobs report was weaker than expected;
• Companies have been reporting weaker-than-expected results in several different sectors;
• Recent economic reports and forecasts suggest a coming slowdown in the U.S. economy; and
• Computer-based trading limits have kicked in on the sell-side.

Last week's Institute For Supply Management (ISM) report dropped to an eight month low, showing a contraction in the economy. In contrast, this morning's Services purchasing Managers (PMI) Index report came in better than expected, showing a continuing expansion in the service economy. The Federal Reserve is on record saying that they will cut interest rates in September, and they may move sooner, if need be. They have been watching economic indicators, like inflation and employment numbers, finally reach levels that they have been targeting for the past 18 months. 

Overall, a single-day 2%-4% decline in the key indices produces some very large "headline" numbers, but the key takeaway is that this overvalued market was due for a correction. Corrections are normal and healthy for markets, providing an opportunity for investors to purchase shares at a discount ahead of the next leg up. At PTM Wealth Management, we see recent market selling as a reminder of why we recommend principal protection investments, like money markets and fixed index annuities with lifetime income benefits. When 20-30%, or more, of savings is shielded from these periodic declines, our financial plans can be more successful in helping clients stay the course and have more confidence in meeting their retirement goals.