Stableford Capital Insights

Stableford Market Commentary August 2023

Have soft-landing expectations peaked?

Equities fell 4.9% at the August low before rebounding to close down 1.9% for the month. It seems that expectations finally got so high that the market was unable to meet them. This is a significant change of sentiment. Since the March bank bailout expectations have been that the Fed would pause soon and engineer a soft-landing for the economy. This allowed valuations to expand and stocks to rise despite lower earnings expectations. [caption id="attachment_4162" align="alignnone" width="1335"]

Line graph of the SPX Index in black

Exhibit 1 - Equities Fall 4.9% Before Rebounding to Close Down 1.9%[/caption]However, someone threw a wrench in the gears during August. Even Nvidia—poster child for AI—wasn’t able to meet earnings expectations despite blowout second quarter numbers beyond even the highest estimates. Perhaps it is a sign that the winds are changing, we’ll see.Rates are also pressuring equities, up appreciably since June and hitting 4.35% for the 10 Year US Treasury during August before closing the month at 4.11%. This despite slowing inflation and a potential Fed pause.[caption id="attachment_4161" align="alignnone" width="1339"]

Black line graph of Bond Yields

Exhibit 2 - Bond Yields Up 15 Points In August to 4.11%[/caption]Is this the peak in soft-landing expectations? It seems like it. Labor data is softening with fewer jobs being added and unemployment rising. Credit card and auto delinquencies are on the rise as well. This doesn’t mean that they have to continue to worsen, but it seems there are fewer prospects for potential upside surprises in the future: Fiscal spending has been strong for a while and would be difficult to increase given a divided Congress, real rates are high, and the Fed shows no signs of cutting rates soon. On the other hand, earnings expectations have not dropped much. Perhaps there is a buying opportunity in the wings. Please call with any thoughts or questions

Are you interested in making portfolio changes or getting a more in-depth analysis? Contact Stableford today by calling 480.493.2300 or simply request a copy of our Market Blast.

SUBSCRIBE TO OUR COMPLIMENTARY STABLEFORD MARKET BLASTThis market commentary was written and produced by Stableford Capital, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested in directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.S&P 500 INDEX: The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure the performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

July 8, 2024
Posted in
by Stableford Capital
Justin Thomas
Justin C. Thomas has worked for over 15 years as a portfolio manager and analyst managing institutional assets for hedge funds and large financial institutions. Career highlights include 8 years as an equity analyst and portfolio manager at PartnerRe Asset Management, a global reinsurance company with $17 billion in assets under management, and prior to that managing a long-short equity portfolio for Citigroup’s proprietary account. Justin has also worked as an analyst at long-short hedge funds and in research for Montgomery Securities (Bank of America Securities). In addition, Justin Thomas gained operational experience while working in finance and operations at E-Stamp, a start-up in Silicon Valley. He began his career working as a CPA at KPMG. Justin has an MBA and Masters in Accounting from Northeastern University and an undergraduate degree in Economics from Tufts University.