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:

• Volatility’s effects on global equity markets
• The cause of the market sell-off
• The silver lining of a slowing economy

Global Equity Markets Shaken by Pronounced Volatility – Global stock markets opened trading Monday with a bang—but not the good kind. Investors were rattled by a steep -12.4% single-day drop in Japan’s Nikkei 225, marking the worst day for Japanese equities since 1987 (which came in response to Black Monday in the U.S.). Other Asian markets like South Korea and Taiwan followed suit as investors fled for the exits, sending those indices down more than -8% each. Here in the U.S., downward pressure had been building for several days already, with the S&P 500 declining -8% in just 14 trading days. Sharp, sudden selling pressure is far from desirable for just about any investor, but there may be a silver lining to this period of pronounced volatility: it looks and feels a lot more like a market correction than a bear market. Historically, the hallmarks of a correction are steep, sudden, often scary periods of selling pressure followed by headlines that recycle well-worn fears. That’s what we think we’re seeing here, with this drawdown being driven primarily by technical factors and a rapid shift in sentiment—not by a deterioration in economic fundamentals.¹

Determining Your Retirement Needs in Today’s Market

Retirement planning can feel daunting, especially in today’s unpredictable market. The secret is to craft a retirement strategy that truly fits your financial goals.

To simplify this process, we’re excited to offer our comprehensive guide, How Much Do You Really Need to Retire?². This exclusive resource dives into essential considerations for setting your retirement goals, including:

• What will be your retirement lifestyle? Will you travel or stay home?
• At what age do you plan to retire?
• What essential expenses will you have?
• What part will Social Security benefits play in your financial picture?
• Plus, many more factors you may want to consider to help you plan for a secure retirement

If you have $500,000 or more to invest, get our free guide, How Much Do You Really Need to Retire?², to help define your retirement goals and ensure you’re on the path to a secure financial future!

Going Deeper: What May Have Caused the Market Sell-Off? There are two key stories we think led to the rapid shift in sentiment that’s driving market volatility. The first is the Bank of Japan’s decision to raise interest rates, and the subsequent unwinding of a massive “carry trade” where investors borrowed in Japanese yen (at very low interest rates) to buy riskier, high-yielding assets—like U.S. stocks. When the Bank of Japan decided to raise rates, many investors had to suddenly unwind these trades, and automatic sell orders likely kicked in once the selling pressure started, exacerbating the declines. The second story relates to ‘weakness’ in the U.S. economy, which saw 114,000 new jobs added in July. This figure was lower than expectations, and the unemployment rate jumped to 4.3%—its highest level in almost three years. What we think is missing from both stories, however, is an actual deterioration in economic fundamentals. The Bank of Japan has already walked back its comments on timing and magnitude of rate hikes, but regardless we’re not sure how Japanese yields will have a meaningful effect on the outlook for U.S. corporate earnings. As for weakness in the U.S. economy via a slowing jobs market, we would argue that this data is already widely known—and therefore lacks much pricing power—and that the jobs market remains stronger than many appreciate. The Labor Department reported that average hourly earnings were up 3.6% in July from a year earlier, which is well above the latest inflation rate posted in June (3.0%). In other words, ‘real’ wages are still rising for Americans, which bolsters overall spending power. The uptick in the unemployment rate was also largely due to more people coming off the sidelines to look for jobs, versus people losing their jobs due to layoffs. The labor-force participation rate rose to 62.7% in July from 62.6% in June. This move may feel insignificant, but without the increase, the unemployment rate would have stayed at 4.1%.³

How Consumers May Benefit from Weaker Growth Forecasts – As mentioned above, one of the main narratives that has accompanied market volatility is that the U.S. and global economy are in a weakening pattern. For consumers, there may be a silver lining to these forecasts for slower growth: falling gas prices. Worries about economic growth trends in China and the U.S. have pulled Brent crude prices about -8% lower over the past month, and investors raised a few eyebrows when it was reported that China’s crude imports by sea fell to an 18-month low.⁴

Crude Oil Prices Have Dipped by About $10 a Barrel in the Last Month

Combined with China’s tangible economic slowdown and its surge as the world’s leading manufacturer of electric vehicles (based on annual production figures of BYD vs. Tesla), the sense is that demand for crude could level off in the coming year and perhaps beyond. On the supply side, global production is poised to move higher as well, from countries outside of OPEC like Brazil, Guyana, Norway, Canada, and of course the U.S. For its part, however, OPEC countries are set to start unwinding production cuts this fall, which could also put upward pressure on global supply. For U.S. consumers, this could translate into lower gas prices in the future, as falling crude prices tend to take a few weeks to translate to lower prices at the pump (because of the long petroleum supply chain).

How Much Do You Need for Retirement? Retirement planning can be complex, especially without a clear understanding of your financial needs. We recommend envisioning your ideal retirement to develop a solid plan and take decisive action.

To help you, we’re offering our exclusive guide, How Much Do You Really Need to Retire?⁶, which highlights crucial factors to help set and achieve your retirement goals. It answers questions like:

• What will be your retirement lifestyle? Will you travel or stay home?
• At what age do you plan to retire?
• What essential expenses will you have?
• What part will Social Security benefits play in your financial picture?
• Plus, many more factors you may want to consider to help you plan for a secure retirement

If you have $500,000 or more to invest, download this free guide today by clicking on the link below.

Disclosure