Market Movers & Shakers

Major U.S. equity indices finished out the month of August at or near all-time highs. The S&P 500 closed higher for a fourth-straight month despite starting August with a 6% decline in the first three trading days. The S&P 500 has since rallied more than 10% from its August 5th low and is less than 1% away from new all-time highs. The Dow Jones Industrial Average notched fresh all-time highs in August while the tech-heavy Nasdaq Composite remains roughly 5% below its July peak. The advance in stocks following the selloff in early August has been relatively broad based as the equal-weighted S&P 500 continues its recent outperformance of the market-cap weighted index. The Financials, Healthcare, Industrials, Consumer Staples, and Materials sectors all hit new highs during the month. Treasuries were notably firmer in August as yields have been trending lower across the curve in anticipation of upcoming interest rate cuts from the Federal Reserve. The 2-year U.S. Treasury yield fell over 30 basis points during the month, settling at 3.92%, the lowest levels since early 2023. The decline in yields has also taken the 30-year mortgage rate down to 6.45%, a 15-month low. The U.S. Dollar Index logged its second-straight monthly decline and touched the lowest levels since July 2023 driven by the expectation of lower interest rates and slower economic growth. WTI crude oil closed out the month at the lower end of its recent trading range near $74 a barrel, while gold prices continued to set new all-time highs above $2,500 an ounce. With the Labor Day holiday behind us, we enter a seasonally weak period for markets. September has historically been the worst month for stock returns. In fact, the S&P 500 and the Dow Jones Industrial Average have both had their largest percentage losses since 1950 in the month of September, according to Bloomberg. Unfavorable seasonality dynamics along with heightened uncertainty surrounding the approaching U.S. presidential election are catalysts for increased volatility in the months ahead.

On the economic front, Federal Reserve chair Jerome Powell provided the clearest signal yet that the Fed is ready to cut interest rates at its next meeting in September. Speaking at the Fed’s annual symposium in Jackson Hole, Powell stated, “the time has come for policy to adjust” and that “the upside risks to inflation have diminished, and the downside risks to employment have increased”. The pivot in policy focus comes amid an unmistakable cooling in labor market conditions. A recent data revision from the Bureau of Labor Statistics showed the U.S. economy added 818,000 fewer jobs than previously reported over the 12-month period ending in March. The revision marked the largest negative revision to payrolls since the depths of the global financial crisis in 2009. As the Fed’s center of attention has shifted from inflation to the labor market, so has the weight market participants have placed on incoming economic data. According to BofA Global Research, S&P futures are now less sensitive to CPI data than at any other point post-Covid, with the payrolls report now the bigger source of volatility. August’s payrolls report, set to be released on Friday, September 6th, is a key datapoint ahead of the September FOMC meeting. Consensus estimates are for a gain of 165,000 jobs and a tick down in the unemployment rate to 4.2%. The discussion surrounding monetary policy has now definitively shifted from when interest rate cuts will occur, to how substantial the Fed’s cuts will be. Markets are now pricing in a 70% probability of a 25 basis point cut in September and a 30% chance of an even larger 50 basis point reduction, according to the CME FedWatch tool.

Updates & News*

Volatility has cooled as stocks have rallied back to their July highs. The cooling in volatility has also slowed the pace of our transition for new accounts and accounts with recent deposits. New money has been invested more slowly over the past couple of weeks compared to the pace in the weeks prior to our last edition of Notes from the Trading Desk. Accounts that have been with Tandem for 2 weeks are just over 1/5th of the way transitioned, while those that have been here for a month are nearly 50% in line with our strategies.

Despite the seemingly endless news flow on the macroeconomic front, things have been relatively quiet at the individual security level. Johnson & Johnson announced the acquisition of V-Wave, a privately held medical technology company focused on developing innovative treatments for patients with heart failure, for $600 million up front with potential milestone payouts up to an additional $1.1 billion. The acquisition extends JNJ’s position in addressing cardiovascular disease following its recent $13.1 billion acquisition of Shockwave Medical and its $16.6 billion acquisition of Abiomed in 2022. Elsewhere, Costco’s first membership fee increase in 7 years officially went into effect over the holiday weekend. The wholesale retailer increased the annual fee for its Gold Star membership to $65 from $60 and raised the cost of its Executive membership to $130 from $120. Each plan’s price hike represents a roughly 8% increase.

Source: Source of all data is FactSet, unless otherwise noted.

*The transition level activity taken by Tandem is applicable to new accounts and new money, not the composite or firm-wide level. New accounts and new money are not automatically invested on the first day. Rather, they are transitioned into our strategy over a longer time period that is dependent upon market conditions. Strategy level activity is applicable to the composite and action is taken at the firm-wide level.

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Disclaimer: Tandem Investment Advisors, Inc. is an SEC registered investment advisor.

This audio/writing is for informational purposes only and shall not constitute or be considered financial, tax or investment advice, or an offer to sell, or a solicitation of an offer to buy any product, service, or security. Tandem Investment Advisors, Inc. does not represent that the securities, products, or services discussed in this writing are suitable for any particular investor. Indices are unmanaged and not available for direct investment. Please consult your financial advisor before making any investment decisions. Past performance is no guarantee of future results. All past portfolio purchases and sales are available upon request.

All performance figures, data points, charts and graphs contained in this report are derived from publicly available sources believed to be reliable. Tandem makes no representation as to the accuracy of these numbers, nor should they be construed as any representation of past or future performance.