Zacks Investment Management

In the current economic landscape, it’s a great time for investors to review their portfolios and explore new strategies. In this issue of Steady Investor, we examine three themes that could shape your investment approach:

• U.S. economy expands
• Investing outside of mega-cap technology
• Commercial-property foreclosures signal a market bottom

U.S. Economy Expands at a Better-Than-Expected Pace…Again – The U.S. economy expanded at a faster-than-expected pace in the second quarter, continuing a trend that has lasted well over a year. According to the U.S. Commerce Department’s “advanced estimate,” the economy grew by 2.8% in the second quarter, double the annualized pace of growth in the first quarter. Importantly, a measure of consumer and business spending—which in our view are the key metrics most influential on stock prices—rose at an annual rate of 2.6%, which was consistent with the Q1 pace and signals ongoing strength. On the consumer side, the Commerce Department reported that spending rose in both services and goods. Within services, the leading contributors were health care, housing and utilities, and recreation services. Within goods, the leading contributors were motor vehicles and parts, recreational goods and vehicles, furnishings and durable household equipment, and gasoline and other energy goods. On the corporate side, businesses invested in commercial construction, equipment, and software, etc. at a stout 5.2% annualized rate, up from 4.4% in the last reporting period. Capital expenditures (capex) were driven by an 11.6% increase in spending on equipment and a nearly 5% increase in software/intellectual property investment, which in our view demonstrates that corporations are going on offense—not what you’d expect to see in a tenuous economic environment.¹

Steps to Overcoming Investor Bias in Today’s Market

Overconfidence, misjudging risk, and chasing illusory patterns are common pitfalls that investors face. These pitfalls can lead to underestimating risks and emotional decision-making.

However, by recognizing and counteracting these behavioral biases, investors can significantly improve their results over time. Our complimentary guide, Three Steps to Combat Investment Behavioral Bias², will help you uncover strategies to:

• The two main types of biases that affect investors: cognitive and emotional
• Specific examples of biased decision-making that can negatively impact your portfolio
• Three essential actions you can take to counteract the natural investor tendencies toward bias

If you have $500,000 or more to invest, download our guide Three Steps to Overcoming Investment Behavioral Bias.² Simply click on the link below to get your copy today!
 
Download Zacks Guide, Three Steps to Overcoming Investment Behavioral Bias²

The Importance of Investing Outside of Mega-Cap Technology – Mega-cap technology companies, like the “Magnificent Seven,” have been delivering strong performance over the past year. In the first half of 2024, five of the biggest players in technology contributed 62% of the index’s total return. It follows that having an allocation to Technology is important when managing an equity portfolio—but diversification is important, too. Case-in-point: in a three-week period in July, the Magnificent Seven lost some $1.52 trillion of market value. We’ve also previously noted that investors have been rotating into small-cap stocks, as economic growth registers more strongly-than-expected, but also as interest rate cuts in September seem all but assured. Since the encouraging inflation report, for instance, the S&P 500’s information technology sector has shed nearly -10%, while the Russell 2000 of small-cap stocks has risen close to +9%. We might reasonably expect more rotation in the second half of the year—by the end of Q2, the Magnificent Seven traded at roughly 34x earnings, while the other 493 stocks in the S&P 500 were closer to 17x earnings.³

Is a Reckoning in Commercial Real Estate Underway? For the better part of two years, investors have been watching for acute signs of distress in the commercial property market. Lenders have also been waiting in the wings, determining whether it’s time to seize control of distressed buildings—an action lenders are generally reluctant to take too soon, in hopes that maybe a recovery will take hold. They’re not waiting anymore. In Q2, portfolios of foreclosed and seized office buildings, apartments, and other commercial property hit $20.5 billion, a 13% jump from Q1 and the highest level since 2015. There has also been an uptick in short sales, where lenders and borrowers negotiate to sell a distressed property for whatever competitive price they can fetch. The rise of remote and hybrid work has been an obvious driver of problems in the office sector. In the second quarter, the volume of property seized in office foreclosures was $5 billion higher than Q2 2023. But it’s also worth considering that solid economic growth has arguably kept the problem from being far worse than it currently is and that losses currently being booked will reset pricing across commercial real estate and put the sector’s downturn closer to its bottom.⁴

Three Steps to Overcoming Investor Bias – Market news and headlines can create anxiety about future fluctuations, but it’s crucial to base decisions on data rather than emotional reactions.

To effectively counter investor bias, it’s essential to grasp its influence on your decision-making. Our educational guide, Three Steps to Overcoming Investment Behavioral Bias⁵, is designed to help you become aware of your own biases, and overcome them. You’ll learn:

• The two main types of biases that affect investors: cognitive and emotional
• Specific examples of biased decision-making that can negatively impact your portfolio
• Three essential actions you can take to counteract the natural investor tendencies toward bias

If you have $500,000 or more to invest and are ready to learn more, click on the link below to get your copy today!

Disclosure