What Happened:

The Stock Market correction began in August with the S&P down 5.15%, NASDAQ 8.00% and the Russell 2000 Small Cap Index off 7.10% from July highs.

Further details:

After a strong 1st and 2nd quarter for the US Markets, equities began to correct in the month of August. In our opinion there are two primary areas we can look to as the catalyst.

1.)   Interest Rates: Ever since the US debt downgrade, investors have been selling longer dated US Treasuries, with the result being higher longer term interest rates.

While the Fed will control the short-term interest rate market, investors will control the longer term and therefore selling pressure has resulted in higher rates.

There seems to be newfound concern over the longer-term fiscal fortitude of the US balance sheet due in part due to the Fitch Downgrade. As interest rates move higher, equities become less attractive and therefore new selling pressure has ensued.

While the concern has hit equities, the US Dollar remains quite strong. Until the US Dollar begins to significantly falter, we view stock market weakness as short-term anomaly rather than a longer-term problem.

If the Dollar began to significantly lose its seat as the world’s reserve currency, we would be forced to re-evaluate. See our article on King Dollar HERE for our views on this.

2.) Communist China: The Chinese economy continues to struggle with one of the largest real estate developers, Evergrande, officially declaring bankruptcy on Friday morning.

Evergrande has had financial troubles over the last few years after defaulting on debt payments in 2021 and has sought out official financial restructuring. In addition to Evergrande, news broke on the financial issues of the country’s 6th largest developers, Country Garden, which may add fuel to the fire.

We believe US Investors are always concerned about the domino effect of this should US banks also be caught up in the Chinese economic decline. In our opinion, this concern always seems to spark a ‘sell first, research later’ mentality which saw bank stocks in the US slide as well.

Why do we care?

While this may be obvious since markets are at the nucleus of our business, we can’t help but to be opportunistic over this recent weakness.

In September 2022,we wrote the following:

“Entering this year, I remember noting the pervading sense of bearishness. Conversations with clients and colleagues were more negative than I could ever recall, and yet the market was improving every day. Now, with the CPI back down to 3%, we understand why the market has been behaving the way it has. This doesn’t necessarily signal the end, but it suggests that the easy gains for 2023 may have been made.”

While these thoughts seem to be coming to fruition, our longer-term view has not changed in that this decline seems to correspond well with a pullback offering opportunity rather than a warning.

We expect to see a bumpy road for the remainder of the summer and would love to see the Fed take this as a queue to begin changing the rhetoric.

Georgia Joins Joule!

Closer to home we’re ecstatic to welcome Georgia Kilgore who recently joined Joule in our client service department to assist us as we serve our growing client base.

Georgia joins us with extensive experience within the financial services and banking environment.

If you haven’t yet had a chance to chat with Georgia, you will in the near future, and I am certain you will agree we are lucky to have found yet another fantastic addition to our growing family.

~ Until next time

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