August 2024 Update: Parallel Universe

Election season is upon us and for those in Minnesota, we know that means fall is coming (and eventually, snow). Given the current election landscape, it is hard not to draw parallels to the 1968 election.

In March of 1968, President Lyndon B. Johnson informed a nationwide television audience that he was planning to cease all bombing raids against North Vietnam amid pressure from a split Democratic Party. At the conclusion of his address, Johnson informed his audience that he would no longer seek or accept his party’s presidential nomination for a second term. Shortly after, the Democratic Party nominated Johnson’s Vice President, Hubert H. Humphrey, as their presidential candidate.

In late July, President Joe Biden announced he would be dropping out of the 2024 presidential race and would later go on to endorse Vice President Kamala Harris as candidate for the Democratic Party. Last week, Harris chose Minnesota Governor, Tim Walz, to join her on the Democratic ticket.

While not originally from Minnesota, both Humphrey and Walz served the majority of their political tenure in Minnesota. Humphrey served as a Senator and later the Mayor of Minneapolis. Walz was a member of the House of Representatives, for Minnesota 's 1st congressional district.

Although investors may closely monitor election results for their potential effect on stock market performance, historical data suggests that economic and inflation trends, more so than election outcomes, tend to have a stronger, more consistent relationship with market returns. This was case and point for the stock market rollercoaster over the past couple of weeks.

On Friday, August 2nd, a weak jobs report and an increasing US unemployment rate triggered a sell-off, leading to negative returns in all three major US stock market indexes. On Monday, August 5th, the NIKKEI 225 Index (Japan’s main stock market index) fell more than 12% amid signals of economic slowdown and rising unemployment in the United States, as well as a more expensive yen. However, according to Newton’s 2nd law, what goes down must come back up (technically, I think it’s the other way around).

Thanks to a drop in US initial jobless claims and dampened fears about the US economy slowing down, the stock market rebounded on August 7th and 8th with all three major US stock indexes posting positive returns. On Monday the 8th, the S&P 500 rose 2.30% marking its best day since 2022. Is your stomach turning from the funnel cake you ate before the rollercoaster? The past couple weeks are a perfect reminder that panicking is not an investment strategy.

According to a study done by Charles Schwab’s Center for Financial Research; during the twenty-year period from 2002-2021, a stock market decline of 10% occurred in 10 out of the 20 years (or 50% of the time). During that same period the stock market yielded positive returns in all but three years with an average gain of approximately 7%. As we all know, market fluctuations are inevitable which further highlights the importance of keeping a diverse portfolio and committing to your long-term plan.

Take care and enjoy the rest of summer,

The Bond&Devick Team

Source:https://www.schwab.com/learn/story/market-corrections-are-more-common-than-you-think