August 31, 2024

Could the Dog Days of Summer be over?  With the end of August approaching quickly, your planning & investment team at Align Wealth Strategies remains cool and collected as we analyze the latest economic trends and market insights. Let’s review the most valuable and actionable information we’ve uncovered for this month and the months ahead.

Economic Slowdown on the Horizon

Recent economic data across labor markets, consumer spending, and businesses point toward a slowing of U.S. economic growth. Nevertheless, these signs are not yet approaching a recession in our view. Stronger-than-expected corporate earnings, especially in the tech sector, reaffirm our positive outlook on U.S. stocks. Amid economic cooling and a potential September rate cut, we will continue to maintain a modest tilt toward Value for now. This viewpoint could change by the end of the year.

Inflation: A Cooling Breeze

Even as economic heat begins to dissipate, inflation is showing signs of cooling down too. Recent inflation reports have come in lower than expected, and key drivers like shelter costs (rent, mortgages) are finally heading lower. However, we’re not convinced inflation will ultimately align with the Fed’s 2% target. Rates may hold a little higher for a little longer than expected, which could indicate that the Fed may be behind the curve.

Earnings Surprise to the Upside

Q2 earnings growth for the tech sector sits at an unexpected 20%, up from expectations of 18% at the start of the season. Meanwhile, non-tech sectors are ready to post their first earnings growth since late 2022– a sign that strong earnings may be broadening out. We continue favoring more U.S. based company stocks and the artificial intelligence (AI) theme, which can keep driving returns throughout the business cycle.

Seeking Shelter in Bonds

As investors worry about equity volatility in the markets, bonds are once again providing a safe haven for rainy days. The income “cushion” from bonds has increased across the board in a higher rate environment. We like quality income in short to intermediate-term bonds and high-yield, while maintaining a neutral stance on longer term fixed income. Core bonds (which tend to track the bond index) and short-term bonds look particularly attractive following Fed rate cuts like those that may be coming soon.

Fun Fact

Did you know that August was once known as “Sextilis” in Latin, meaning the sixth month? It was later renamed to honor the first Roman emperor Augustus, who chose this to celebrate his greatest triumphs, including the conquest of Egypt.

As we wander through the market’s twists and turns this August, Align Wealth Strategies is here to help you stay on course. Let’s connect to ensure your financial plan is well-positioned for the changing seasons ahead.