Goodbye summer/hello fall, plus the American Dream, household allocations, and a highly anticipated book is here
The Sandbox Daily (9.3.2024)
Welcome, Sandbox friends.
To say I’m excited would be an understatement. We’re uncorking that expensive bottle of Cab tonight and diving right into Josh’s new book, You Weren’t Supposed To See That.
Today’s Daily discusses:
goodbye summer, hello fall
American Dream – out of reach?
household allocations to stocks at all-time highs
Let’s dig in.
Markets in review
EQUITIES: Dow -1.51% | S&P 500 -2.12% | Russell 2000 -3.09% | Nasdaq 100 -3.15%
FIXED INCOME: Barclays Agg Bond +0.42% | High Yield -0.35% | 2yr UST 3.875% | 10yr UST 3.844%
COMMODITIES: Brent Crude -4.79% to $73.81/barrel. Gold -0.16% to $2,523.6/oz.
BITCOIN: -0.67% to $58,121
US DOLLAR INDEX: +0.14% to 101.795
CBOE EQUITY PUT/CALL RATIO: 0.60
VIX: +33.25% to 20.72
Quote of the day
“Practice isn't the thing you do once you're good. It's the thing you do that makes you good.”
- Malcolm Gladwell, Outliers: The Story of Success
Goodbye summer, hello fall
As everyone settles into their post-Labor Day routines, it’s a good time for investors to reflect on markets and review their financial plans for the rest of the year.
August began with the sharpest market declines in two years, but major indices managed to climb a wall of worry and now have rebounded with the S&P 500 only a fraction of a percent from its all-time high. The Federal Reserve is widely expected to announce its first rate cut at its September 18 meeting, which has caused interest rates to stabilize in recent weeks. Inflation remains on a downward trajectory and the broader economy remains strong. So, while September opens the door to market uncertainty, it’s important for us to maintain perspective.
In particular, investors should always be prepared for volatility, especially with possible market-moving events in the coming months. There is still uncertainty around the Fed’s rate cut path over the coming months and years, the upcoming presidential election, ongoing geopolitical risks, and the seasonally volatile stretch for stocks in September and October.
Despite recent market swings, the S&P 500, Nasdaq 100, and Dow Jones Industrial Average have gained +19.5%, +18.6%, and +11.7% with dividends this year, respectively. The S&P 500 has experienced only two periods of sustained pullbacks this year, with the largest decline measuring 8%, below the historical average. Bonds have struggled much of this year as rates remained high, but the anticipation of Fed rate cuts has helped to boost returns more recently. So, while market volatility is never pleasant, it is important not to overreact to short-term events.
The stabilization in the stock market has shifted investor focus back to fundamental factors, particularly corporate earnings. This is because the stock market tends to mirror the trajectory of corporate profits over time, which in turn rises alongside the economy. Current earnings projections are positive with an expected growth rate of 10% in 2024 and nearly 14% over the next twelve months.
Similarly, bonds have performed better, with the Bloomberg U.S. Aggregate Index gaining +1.1% year-to-date and +5.4% since its bottom in late April when the 10-year Treasury yield peaked around 4.7% – fueled by the current Goldilocks period of improving inflation and steady economic growth. Bond prices also jumped at the beginning of August as they helped to balance stock market swings.
These facts emphasize the importance of maintaining investment discipline and portfolio diversification, especially during periods of uncertainty.
Source: Clearnomics, Edward Jones
American dream – out of reach?
For many Americans, the traditional signifiers of success in this nation – owning a home, supporting their family, and saving for retirement – feel unreachable, per a new Wall Street Journal poll.
49% of Americans believe the American dream no longer holds true, the highest share over the last decade plus.
Just 34% of respondents said the American dream is still possible, down from 53% in 2012.
The crux of the matter comes to homeownership.
Nearly nine out of ten Americans (89%) believe owning a home is important to their future goals, according to the WSJ poll (with an assist from research organization NORC at the University of Chicago). But only 10% consider homeownership readily achievable.
Housing unaffordability has been an issue for years as the U.S. housing stock isn’t growing fast enough to absorb the demand, leading values of existing homes to reach records. More recently, the problem has been compounded by decade+ highs in borrowing costs. Even so, owning a home remains one of the key tenets of growing household wealth and generational wealth, making this real estate problem an economic equity problem.
Between people living longer, the cost of living rising, the worry that Social Security could decrease for future retirees, and the aforementioned home affordability issue, the falling stock of people believing in the American dream reflects an unfortunate reality for many.
Source: Wall Street Journal, Lance Lambert
U.S. household allocations to stocks at all-time highs
The share of American households’ allocation to stocks in relation to their overall assets has never been greater, currently at 42% and the highest percentage dating back to 1952.
While many factors have contributed to this phenomena – technology, education, innovation, access, etc. – I’d argue none is more significant than decades of fee compression that created a steady and significant rise in investor interest and engagement.
It must be noted that stock ownership is highly correlated with income. Across income brackets, 87% of households with annual income above $100,000 own stocks. However, only 25% of households with a yearly wage of $40,000 or less own stocks.
Source: Charlie Bilello
That’s all for today.
Blake
Welcome to The Sandbox Daily, a daily curation of relevant research at the intersection of markets, economics, and lifestyle. We are committed to delivering high-quality and timely content to help investors make sense of capital markets.
Blake Millard is the Director of Investments at Sandbox Financial Partners, a Registered Investment Advisor. All opinions expressed here are solely his opinion and do not express or reflect the opinion of Sandbox Financial Partners. This Substack channel is for informational purposes only and should not be construed as investment advice. The information and opinions provided within should not be taken as specific advice on the merits of any investment decision by the reader. Investors should conduct their own due diligence regarding the prospects of any security discussed herein based on such investors’ own review of publicly available information. Clients of Sandbox Financial Partners may maintain positions in the markets, indexes, corporations, and/or securities discussed within The Sandbox Daily. Any projections, market outlooks, or estimates stated here are forward looking statements and are inherently unreliable; they are based upon certain assumptions and should not be construed to be indicative of the actual events that will occur.