Why staying invested matters, plus the best long-term investment, market breadth, and worker productivity

The Sandbox Daily (5.29.2024)

Welcome, Sandbox friends.

Today was double settlement day. Under the old convention, T+2 trades from Friday of last week settled to cash today. Under the new convention, T+1 trades from Tuesday of this week settled to cash today. Happy double settlement day!

Today’s Daily discusses:

• staying invested matters

• Americans’ perception of the best long-term investment

• breadth hints more potential upside ahead

• the worker productivity surge

Let’s dig in.

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Markets in review

EQUITIES: Nasdaq 100 -0.70% | S&P 500 -0.74% | Dow -1.06% | Russell 2000 -1.48%

FIXED INCOME: Barclays Agg Bond -0.38% | High Yield -0.30% | 2yr UST  4.975% | 10yr UST  4.614%

COMMODITIES: Brent Crude -1.04% to $83.34/barrel. Gold -0.83% to $2,359.5/oz.

BITCOIN: -1.57% to $67,176

US DOLLAR INDEX: +0.50% to 105.134

CBOE EQUITY PUT/CALL RATIO: 0.56

VIX: +10.53% to 14.28

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Quote of the day

“If everyone is thinking alike, then somebody isn’t thinking.”

- George S. Patton, U.S. General

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Staying invested

Staying invested matters and it is the most essential principle of all.

While markets will always have a bad day, week, month, or even year, history suggests that investors are less likely to suffer losses over longer periods. The chart below illustrates this concept.

While 1-year stock returns have varied widely since 1950, a blend of stocks and bonds has not suffered a negative return over any 5-year rolling period over the past ~75 years.

Source: J.P. Morgan Guide to the Markets

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The best long-term investment

If you could choose one asset to invest in for the longer term, what would it be?

For years, Gallup has asked investors exactly that question, and since 2013 the most popular answer has been the same: real estate.

In some ways, real estate’s popularity shouldn’t be surprising. American’s historical tendency to choose real estate as the best long-term investment is consistent with their expectations and the historical data of rising local home prices over time.

Still, it’s worth questioning whether buying property makes sense for your personal financial plan given the asset classes risks of illiquidity and information asymmetry, among others.

Source: Gallup Poll

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Breadth shows more potential upside ahead

Even though the S&P 500 is trading ~2.5% above its 50-day moving average (50-DMA), only 42.4% of stocks within the index began the day above their 50-DMAs.  That's a pretty steep divergence that tells us the market is not really as "overbought" as the index's price makes it seem.

In fact, the majority of stocks across 7 sectors are trading below their 50-DMA.

Source: Bespoke Investment Group

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The worker productivity surge

After nearly two decades of slow productivity growth, strong estimates over the past year suggest that period may be coming to a close.

A key part underpinning the disinflation trend last year was the remarkable surge in how much economic output each hour of labor could generate. This productivity boom has continued in 2024, growing +2.9% YoY as of the 1st quarter.

As Sonu Varghese, Ph.D. notes:

“That is well above the 1.1% annualized pace between the 1st quarter of 2020 and the 1st quarter of 2023, or the 1.5% annual pace between 2005 and 2019.”

If sustained, productivity growth at that elevated level would allow an excellent mix of above-trend growth, rising real incomes, and falling inflation.

These recent gains in productivity growth are the likely result of business investment and business formation, rather than AI technology which should drive strong gains in the years ahead.

Source: Aspen Institute’s Economic Strategy Group, Carson Group

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That’s all for today.

Blake

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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.