Jordan Daugherty discusses big tech fatigue and fed cuts in our September video market update.
Stock Market Update Transcription
Welcome back. I’m investment analyst Jordan Daugherty, and this is your September market update. Big news for investors this month with the Fed announcing it plans to start cutting its 5.5% benchmark interest rate. The decision follows two straight reports indicating job growth slowed enough to require Fed action. You can see in this chart that unemployment remains at historic lows, despite creeping up from its 2023 low of 3.4%. Unemployment has been accelerating for the last six months and clocked in at 4.2% for August. Talk of recession or doom-and-gloom scenarios feed popular headlines, sure, but the evidence points toward a resilient American economy, facing an expected slowdown, in part due to the Fed using higher borrowing rates to bring down inflation.
The second quarter’s GDP growth estimate stands at 3% annualized, and the current forecast for Q3 is 2.8%. The prospect of a soft landing looks intact with economic growth maintaining a solid pace.
Stock markets have struggled this summer in what looks like big tech fatigue. Strong earnings results from mega cap tech giants like Apple, Microsoft, Google, Meta, and Amazon failed to stem investors’ renewed appetite for defensive sectors and corporate bonds. A quick look at earnings guidance shows the logic behind markets trimming back the exposure to tech stocks.
The Magnificent Seven, or the top seven stocks in the S&P 500, all big tech names, generated over 30% of earnings per shared growth in 2023. Now enter the law of averages. You can see this abnormal EPS growth is forecast to decline through 2025 as the remaining 493 S&P 500 stocks continue to recover. The point is that Mag Seven’s earnings growth is now forecast to level off near the S&P 500 average by the end of next year.
Sectors outperforming during the tech sell off include utilities, real estate, and financials. These are high dividend paying sectors that should benefit from the Fed cutting rates and help cushion against near-term volatility.
I expect volatility to continue trending upward through the election. If you look at stock performance during the previous eight presidential elections, you can see VIX, or the Fear Index, tends to spike from September through Election Day. Now, cooler heads do prevail once the votes are counted, but the dramatic uncertainty of a White House transition has a pattern of stirring up markets. Either way, our proactive approach with FSA’s safety net strategies will follow the money and maintain an exit plan.
That’s it for this month’s market update. Thank you for watching, and we’ll see you next time.
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