An update on the recent developments in the financial markets, particularly the events that unfolded over the weekend and today.
What Happened?
On Monday, August 5, 2024, we witnessed significant volatility across global financial markets. The U.S. stock market experienced a sharp decline, with the tech-heavy Nasdaq composite dropping 3.4%, extending its recent correction (a 10% decline from its most recent high). This downturn was primarily driven by concerns about a potential slowdown in the U.S. economy, following weaker-than-expected reports on the job market, manufacturing, and construction last week. Additionally, the Japanese stock market saw its worst two-day decline on record, with the Nikkei plunging more than 12% on Monday alone, largely due to the Bank of Japan’s recent interest rate hike
The sell-off has been particularly pronounced in the technology sector. Apple’s stock fell more than 5% after Warren Buffett’s Berkshire Hathaway disclosed a reduction in its stake in the company. Nvidia, another tech giant, lost over $420 billion in market value between Thursday and Monday. These movements reflect growing investor concerns about potential overvaluation in Big Tech stocks.
Possible Path Forward
The following chart from our friends at Bespoke showcases future performance for the S&P 500 after this most recent selloff.
The chart in summary:
- The S&P 500 entered a 7%+ drawdown, closing 8.5% below its record highs from 14 trading days ago.
- Historically, after such drawdowns, forward returns are often positive over the subsequent day, week, month, and year.
- Excluding the unique circumstances of 2020, the downside risk over the next month is historically around 8%, with significantly higher upside potential.
- Over the next three months, returns tend to favor bulls, even if the market doesn’t bottom immediately.
- The current rapid selloff has brought the S&P 500 to levels where a bottom may be near, suggesting potential for recovery.
It’s important to highlight that these are scenarios based on averages and we have no way of predicting future outcomes.
What Are We Doing About It
We want to reassure you that our diversified portfolios and strategies are specifically designed to buffer against sudden market turmoil and collapses like the one we experienced today. We are actively monitoring your portfolio to ensure it is not overexposed to any single sector or individual stock. While market corrections can present challenges, they can also offer opportunities for strategic adjustments. We understand that each client’s situation is unique, and we are carefully considering your individual risk profile, tolerance, liquidity needs, and both short-term and long-term objectives in our decision-making process.
Thank you for your continued trust and confidence. Please feel free to reach out if you have any questions or need further clarification.
Best,
Daniel and the Rely Wealth Team
