written by Brian Frederick, CFP®, CIMA® & Trevor Marston

What We’re Seeing

“The most contrarian thing of all is not to oppose the crowd but to think for yourself.”

— Peter Thiel

In the world of investing, a well-known adage often surfaces: “past performance does not indicate future results.” Indeed, it doesn’t. Statisticians might even elevate this caution, asserting that past performance doesn’t even infer anything about outcomes. Yet, our brains often instinctively seek patterns where none may truly exist or where the patterns are far more complex than they appear.

At social gatherings or around the barbeque, it’s common to hear financial pundits or friends tout the spectacular rise of certain stocks, boasting of gains in the hundreds of percent. We all recognize these anecdotes. The reality, however, is more nuanced. Some of these high-flyers have plummeted by as much as 80%, while others languished for a decade or more before staging a recovery.

Navigating such volatility can be daunting, particularly when personal financial needs, such as buying a home or covering childcare costs, come into play. The critical question becomes: how many of us would steadfastly hold through such downturns when faced with pressing real-world expenses? While some may possess this constitution, others do not. This is a key reason why many investors’ returns lag behind those of a simple buy-and-hold strategy. There’s no shame in that. It’s just that we’re all optimizing for something different than a purely mathematical result. We’re optimizing for our lives.

To tip the statistical scales in our favor, we must adopt a strategic approach. This includes having a robust financial plan and maintaining a broadly diversified portfolio capable of withstanding various market conditions. Moreover, sound financial advice provides an objective perspective, holding up a mirror to our biases and helping us stay grounded.

5 Major Takeaways

• Elections: Recent months have witnessed a series of fiercely contested elections across the globe. Notable events include the European Parliament elections, the French parliamentary election, the UK general elections, and significant elections in Mexico and India. In each instance, market reactions were notable but short-lived. JP Morgan wisely observes that attempting to time the market around elections is as challenging as market timing on any other day of the year. [Link]
• Inflation: Inflation continued to moderate in the 2^nd quarter and has continued a fitful downtrend since late last year. Though, globally, inflation has been anything but symmetrical, there is a strong reason to believe these trends may continue.
• The Yen: On June 28^th, the Yen reached a 38-year low against the dollar. Meaningful in several ways, the Yen remains one of the most stable, safe-haven global currencies. However, the disparity between extremely low interest rates in Japan and higher interest rates in the US and abroad has put tremendous pressure on the Yen this year. [Link]
• The Dollar: The US dollar has proved quite strong this year, with the US dollar index (DXY) up by +3.59% this year. The strength of the dollar has defied some expectations, and NPR has an excellent article on some of the complexities of dollar strength both domestically and globally. [Link]
• Sentiment: As we’ve written previously, consumer sentiment has divided meaningfully depending on your perspective. The Kenan Institute at the University of North Carolina wrote an interesting article that looks more deeply at what this disparity means, what causes it, and what the disconnect between economic indicators and sentiment may be. [Link]

One Big Number

62.6%¹

This is the overall labor force participation rate in the US. A number that has seen a significant decline since the pandemic despite a brief rebound in 2023. As we see below, however, under the hood, a much different story is told.

And One Big Chart

¹

Labor force participation for working-age adults (16-64) has surged beyond pre-pandemic levels, although the overall participation rate has flattened largely due to older Americans retiring. This increased participation boosts overall productivity and acts as a tailwind for GDP growth. The labor market continues to be stronger than expected, contributing to GDP as people feel secure in their employment and continue to spend. Wage inflation has eased while unemployment has ticked up slightly. If inflation fears subside, corporate earnings and consumer spending can sustain the economy’s momentum. Despite demographic shifts, the combination of higher employment and average wage growth indicates a relatively healthy economy.

¹ BLS, FactSet, J.P. Morgan Asset Management. Guide to the Markets – U.S. Data are as of June 30, 2024.

Opinions expressed in the attached article are those of the author/speaker and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Including diversification and asset allocation. Past performance may not be indicative of future results. Prior to making an investment decision, please consult with your financial advisor about your individual situation. The stock indexes mentioned are unmanaged and cannot be invested into directly.