September's Monthly Commentary

As of August 31st, The WealthTrust DBS Long Term Growth Portfolio's year to date performance climbed to #25 out of 1,525 (all asset class) strategies on the SMArtX Platform and the WealthTrust DBS Large Cap Portfolio is now #30. This can be attributed to the asset allocation blends within the portfolios as indicated in the top ten holdings below. 

 

Market Performance Overview: August 2024 saw the major averages mostly finish higher, with the S&P 500 advancing for a fourth consecutive month, up 2.28%. The Dow Jones Industrial Average increased by 1.76%, while the Nasdaq gained a modest 0.65%. The Russell 2000, representing small caps, underperformed with a decline of 1.63%. The equal-weighted S&P 500 (RSP) outpaced the cap-weighted index, reaching a new record high.

This month, defensive sectors were the best performers, with notable gains in property and casualty insurance, pharmaceuticals, tobacco, hospitals, telecom, protein, pet products, quick-service restaurants (QSRs), and exchanges. Meanwhile, big tech showed a mixed performance, with Tesla (TSLA) down 7.7% and Amazon (AMZN) down 4.5%, offset by Meta Platforms (META), which climbed 9.8%. Other laggards included sectors like paper, dollar stores, energy, department stores, cosmetics, industrial metals, fund managers, semiconductors, casinos, parcels and logistics, homebuilders, and housing-linked retail.

 

WealthTrust Long Term Growth Portfolio Monthly Top 10

 

Market Drivers: The month began with a sharp selloff, with the S&P 500 dropping over 6% in the first three trading days and the "Magnificent Seven" tech stocks falling nearly 10% in the first week. This selloff was primarily driven by growth concerns after July payrolls data missed expectations, raising fears that the Federal Reserve may be behind the curve. July nonfarm payrolls came in at 114,000, significantly below the consensus estimate of 175,000, and a decline from June's downwardly revised 179,000. The unemployment rate also ticked up to 4.3%, triggering the recession-predicting Sahm Rule.

Following these reports, expectations for a Fed rate cut increased sharply, with markets pricing in a 70% chance of a 50 basis point cut in September at one point due to concerns of a hard landing. The selloff was exacerbated by an unwinding of the yen carry trade amid divergent expectations for Federal Reserve and Bank of Japan policies, while the VIX surged above 65 in early August, marking the biggest intraday jump on record.

However, the market staged a strong rebound, erasing early-month declines as the odds of a soft landing increased over the course of the month. The Federal Reserve essentially confirmed its intention to cut rates in September as recession risks appeared low. July's core CPI data aligned with consensus expectations, with a three-month annualized core CPI pace of 1.57% — the slowest since February 2021. In a speech at Jackson Hole, Fed Chair Jerome Powell emphasized the Fed's shift in focus toward the labor market, suggesting diminished upside risks to inflation and a commitment to supporting a strong labor market.

 

Outlook and Sentiment: Optimism surrounding a potential rate cut fueled bullish sentiment, with Evercore ISI strategists highlighting that Fed rate cuts in a non-recession scenario historically push the S&P 500 higher by 18% in the year following a rate cut. As growth fears eased, the market reduced its rate cut expectations, pricing in a 30% chance of a 50 basis point cut in September and around 100 basis points of cuts by year-end. Additional bullish narratives included the continuation of buybacks, favorable seasonality, and ongoing support for the AI secular growth theme, despite some setbacks like the Nvidia (NVDA) selloff following earnings.

Treasuries saw their fourth consecutive monthly rally, the longest since 2020, with the yield curve nearly fully uninverting as the 2Y/10Y spread approached -2 basis points near the end of the month. However, some analysts flagged this as a cautionary signal, indicating rising recession odds. The Treasury rally also weighed on the US dollar, which posted its worst performance since November 2023. Defensive sectors, such as utilities, healthcare, consumer staples, and gold, showed notable outperformance.

 

Corporate Updates: This month's earnings reports focused heavily on the US consumer, particularly within the retail sector, where results were mixed. Dollar General (DG) fell 31.1%, while McDonald's (MCD) rose 8.8%, both pointing to cautious takeaways for lower-income consumers. Some travel and leisure companies, like Disney (DIS), down 3.5%, flagged shifts in consumer spending patterns. Conversely, Target (TGT) reported a 2.1% increase, showing strength in discretionary categories, and Walmart (WMT) surged 12.5%, noting no further deterioration in consumer health. July retail sales posted the most significant month-over-month increase since January 2023, adding to the optimistic sentiment.

In the tech sector, Apple (AAPL) rose 3.1% with a slightly better-than-expected guidance ahead of the September iPhone 16 release. Amazon beat expectations with its AWS performance, but its Q3 operating income guidance was light. Nvidia (NVDA) ended the month up 2%, though off its best levels after releasing Q3 results. The chip sector, however, declined for the second consecutive month, with Intel (INTC) plunging 28.3% following weak results and rumors of strategic changes. Super Micro Computer (SMCI) saw its worst month since 2018, falling 37.6% after a short report from Hindenburg Research cited financial irregularities and a delay in its FY24 10-K.

Other corporate news included Starbucks (SBUX) surging 21.3% after naming Chipotle (CMG) CEO Brian Niccol as its new CEO. Google (GOOGL) fell 4.8% following a US District Court ruling that it abused a monopoly over search, with the Justice Department reportedly considering a breakup of the company. Mars confirmed its acquisition of Kellogg (K) in a ~$29 billion deal, while Paramount Global (PARA) struggled to find a buyer, dropping 8.3%. Boeing (BA) fell 8.9% after grounding its 777X test fleet due to engine design issues.

 

Sector Performance:

• Outperformers: Consumer Staples (+5.78%), Real Estate (+5.64%), Healthcare (+4.99%), Financials (+4.36%), Utilities (+4.29%), Industrials (+2.67%), Materials (+2.22%)
• Underperformers: Energy (-2.32%), Consumer Discretionary (-1.08%), Technology (+1.16%), Communication Services (+1.23%)

 

Overall, August 2024 was a month marked by volatility but also resilience, as the market navigated mixed economic data, evolving Federal Reserve policy expectations, and varied corporate earnings results. Looking ahead, the focus remains on the upcoming August payrolls report and the Federal Reserve's next moves as the market continues to gauge the balance between inflation risks and economic growth prospects.