Years ago, upon entering the profession of investment management, we were told by our supervisors to never make promises.  However, they were wrong in one respect.  Here is a promise we can unequivocally make to our investors: ‘You absolutely will have periods when the value of your portfolio will decline.”  Over the last couple of weeks, we have seen a rapid downward correction in the stock market. This discomfort was especially evident in the technology and computer related companies.  While it should not be unexpected or worrisome given the large advances we have seen during the last year and a half, lower valuations are always uncomfortable.

It seems we are constantly surrounded by at least some distressing or disturbing news, but this is particularly true during an election year.  That is why it is important to keep focused on the facts:

1. The current unemployment rate is 4.2%.  (US Bureau of Labor Statistics) The unemployment rate in the US averaged 5.69% from 1948 until 2024.  There was an extreme in April 2020 when it touched 14.8% due to Covid, but 4.2% is historically low. (Federal Reserve Bank of St Louis) Conjecture: we believe and subscribe to the opinion that a 5% rate was probably rather normal in a healthy economy, as there are likely 5 out of every 100 people who are simply unemployable for one reason or another.
2.  Interest rates- Current average 30-year fixed mortgage rates = 6.44%. (www.bankrate.com as of Sep4, 2024).  Looking at the past four decades, the average rate on a 30-year fixed mortgage peaked in 1981, rising to roughly 16%.  The average fixed rate bottomed in 2021 at just under 3%.  Today the cost of a typical 30-year fixed mortgage is similar to rates seen in the late 1990’s, in the 6-7% range.
3. The United States produces 28.8 percent of the world’s gross domestic product.  China is second at 18.5 and Germany and Japan come in respectively at third and fourth at 4.6 and 4.1 respectively.  (International Monetary Fund estimates for 2024)
4.  As of July 2024, the yearly inflation rate (CPI) in the United States was 2.9%. (U.S. Bureau of Labor Statistics).  This is down from a peak of 9.1% in June of 2022 (highest since November 1981).  In late August, Chairman Jerome Powell indicated the Federal Reserve is prepared to begin a rate cutting cycle as the inflation rate is nearing their long run target of 2%.

The stock market is never easy, nor is it always smooth sailing particularly during an election year.  The party in power emphasizes the positive news, while the party seeking re-election declares that economic conditions are terrible.  Predictably, when markets go down, the news media brings out the depressingly negative soothsayers who declare that this current drop is only the beginning.  Many of these clairvoyants may have done very little serious research to back their conclusions, but they are never short on opinion.

Mark Twain had some interesting reflections on the conclusions of prognosticators and statisticians.  Here is an excerpt from his book, Life on the Mississippi, published in 1883.  Some of the wide bends in the great Mississippi River had been removed and straightened (several for navigation purposes).

This is his quote: “In the space of 176 years the Lower Mississippi has shortened itself 242 miles. That is an average of a trifle over one mile and a third per year…  And by the same token any person can see that 742 years from now the lower Mississippi will be only a mile and three-quarters long.  There is something fascinating about science. One gets such wholesale returns of conjecture out of such a trifling investment of fact.”

The most important thing is to control our own actions, believe in proven truths, and use patience and discipline.  As you already know, we have been optimistic regarding equities for the past several years.  We believe and continue to hold the opinion that we are in a secular bull market, and while unforeseen conditions will occasionally arise, we see no reason to change our positive outlook both on the economy and the stock market.

“The stock market is a device to transfer money from the impatient to the patient.”         Warren Buffett

Mike                              Ben                               Chris

^[1]https://www.bls.gov/ces/

^[2]https://www.bankrate.com/mortgages/30-year-mortgage-rates/

^[3]https://www.imf.org/external/datamapper/PPPSH@WEO/EU/CHN/USA

^[4]https://www.bls.gov/cpi/

[5] https://www.goodreads.com/quotes ]