{"id":1819,"date":"2024-08-09T19:04:56","date_gmt":"2024-08-09T23:04:56","guid":{"rendered":"https:\/\/advisor.wellington-altus.ca\/goldsealfinancialgroup\/?p=1819"},"modified":"2026-02-18T15:17:04","modified_gmt":"2026-02-18T20:17:04","slug":"gold-seal-monthly-review-august-2024","status":"publish","type":"post","link":"https:\/\/advisor.wellington-altus.ca\/goldsealfinancialgroup\/gold-seal-monthly-review-august-2024\/","title":{"rendered":"August 2024 Monthly Review"},"content":{"rendered":"

\"Team\"<\/p>\n

Gold Seal Monthly Review<\/strong><\/h2>\n

\u201cIf you have knowledge, let others light their candles in it.\u201d<\/em><\/p>\n

\u2013 Margaret Fuller<\/em><\/p>\n

Canada’s 5-star Advisory Teams Revealed!<\/h3>\n

\"wpca\"<\/p>\n

We\u2019re excited to announce that\u00a0Gold Seal Financial Group<\/strong><\/em>\u00a0has been honored as a\u00a02024 5-Star Advisory Team by Wealth Professional Canada!<\/a><\/p>\n

This recognition reflects our unwavering dedication to you, our clients, and our commitment to providing exceptional financial advice and personalized service. We\u2019re incredibly grateful for the trust you place in us every day.<\/p>\n

The 5-Star Advisory Teams list celebrates the best in the industry, and it\u2019s truly an honor to be included. This award is not just about us\u2014it\u2019s about our client’s success, the unparalleled support of Wellington-Altus, and the shared journey toward achieving our client’s financial goals.<\/p>\n

Thank you for your continued support and for being an essential part of our Gold Seal family. We\u2019re excited to keep working together to create a bright financial future!<\/p>\n

Japanese Summer Blockbuster Drops \u201cGodzilla\u201d on Markets<\/strong><\/span><\/h3>\n

\"butterfly\"<\/p>\n

“The flapping of the wings of a butterfly can be felt on the other side of the world.” \u2013 Chinese proverb<\/em><\/p>\n

Between presidential pull-outs and assassination attempts in the U.S., the\u00a0largest-ever IT service disruption<\/a>, the\u00a0fear of an AI bubble bursting\u00a0<\/a>, and\u00a0U.S. unemployment hitting 2021 levels<\/a>\u00a0causing a revival of recession fears, summer 2024 has brought some unexpected twists to financial markets. Despite the gravity of these headlines, none rattled investors quite like the significant downturn we saw on Monday of this week. The catalyst for this market shake-up was Japan’s central bank raising interest rates for the first time in over 15 years. Despite the butterfly-flap-sized increase from a range of 0-0.1% to 0.25%, the signaling of tightening financial conditions caught many investors off guard and led to a sharp drop in the Nikkei index,\u00a0which dropped over 12%<\/a>\u00a0in it\u2019s worst day since Black Monday in 1987. It didn\u2019t take long for the impact to ripple through global markets, including North America.<\/p>\n

A major factor behind the dramatic market reaction was the unwinding of the “yen carry trade.” For years, investors borrowed yen at very low interest rates to invest in higher-yielding assets elsewhere – including U.S. tech. When the Bank of Japan raised rates, the cost of borrowing yen increased significantly, causing a sudden spike in its value. This forced investors to quickly sell off other assets to cover their borrowed positions, contributing to the market volatility we witnessed.<\/p>\n

The sudden rise in the yen’s value\u2014nearly 10% against the U.S. dollar<\/a>\u2014meant that many institutional investors had to act fast. This rapid selling created a ripple effect, leading to significant drops in major indices. For instance, the NASDAQ 100\u00a0lost nearly $907 billion in market value in just one day<\/a>. This sell-off was particularly hard on tech giants like NVIDIA, Apple, and Microsoft.<\/p>\n

As a result, Monday’s high trading\u00a0volumes caused interruptions in major brokerage platforms<\/a>\u00a0like Fidelity and Schwab, underscoring the widespread impact of the yen carry trade unwinding. This should serve as a stark reminder of how interconnected global financial markets have become, and how quickly overnight developments can be digested in our domestic markets. If there are (somehow) any of our clients that still believe they can time the market, please do take note of the following chart showing that by the time trading resumed after the weekend, most of the damage was done.<\/p>\n

\"S&P500<\/p>\n

Despite the initial panic, Japanese and U.S. markets showed signs of recovery merely one day after the downturn. The Nikkei index\u00a0rebounded with a 10.2% gain<\/a>, marking its largest daily increase since 2008. This bounce-back highlights the resilience of the markets and the\u00a0importance of keeping a calm, measured approach during periods of volatility.<\/strong><\/p>\n

While Wall Street\u2019s \u201cfear gauge\u201d (VIX\/CBOE Volatility Index) hit it\u2019s highest level<\/a>\u00a0since the pandemic market declines of March 2020, the U.S. economy appears to be much less rattled. This week, the Atlanta Fed went as far as to further raise its target for U.S. third quarter\u00a0real GDP growth to 2.9<\/a>%. Globally, the primary economic risk factor remains a resurgence of our presently moderating inflation readings that would require interest rates to remain elevated. Conversely, our high rate environment is presently serving as the cushion for our inflation soft-landing. The bull-case remains that a severe slowdown in economic growth and rise in unemployment would be met with substantial rate cuts – a tool that was not available during the already rock-bottom rate environment of 2020.<\/p>\n

Furthering this optimistic case is the presently record breaking\u00a0$6.15 trillion in money market funds<\/a>, representing cash on the sidelines. While some of this is due to the suckers that went running to cash when everyone started screaming \u201crecession\u201d in 2022, the record cash buildup is completely reasonable when investors can achieve solid returns by parking savings in high-yield cash accounts. Rate cuts in response to economic distress would remove that incentive and drive a wave of return-seeking cash into global equity markets, driving stock valuations higher. Fundamentally, earnings have also been surprising to the upside even within the already mega-cap tech sector, with\u00a0Meta reporting 22% revenue growth<\/a> last quarter. It\u2019s difficult to worry about a fall with this many lifelines.<\/p>\n

\"economic
Source: YCharts<\/em><\/figcaption><\/figure>\n

Lifelines and economics aside, investors must always be wary of exogenous or outside shocks and systemic surprises that don\u2019t show up in leading data. Our two most significant market events over the past two decades should serve as prime examples. Post-2018 rate cuts painted a picture of a stimulated and growing economy before the outside shock of a global health pandemic rocked financial markets. Loose financial conditions and regulation in the early 2000\u2019s drove economic growth before it was discovered that the high-grade reserve collateral the banks were using to support their deposits were backed by defaulting sub-prime mortgages in 2008. Monday was a reminder for our clients that systemic risks do exist, and if the market activity of that day caused you to take action on your portfolio, that portfolio is objectively not suitable for you and urgent discussion with your Gold Seal Advisor is very politely requested. While dramatic market movements can be unsettling, our goal is to help you navigate these changes with confidence and clarity, ensuring that your financial goals remain on track despite the ups and downs of the market.<\/p>\n

Presently, our model \u201cSerenity Portfolios\u201d are enjoying the benefits of a high-rate environment and potential for rate cuts with an overweight to Fixed Income and Bond positions. We maintain a very moderate overweight lean into U.S. markets, a slightly more pronounced lean into discounted international and emerging markets, and an underweight to Canadian markets that Gold Seal\u00a0Portfolio Manager Ryan Archambault<\/a>\u00a0describes as \u201cthe shortest on Canada I\u2019ve been in my career\u201d. More on that in our next newsletter, as the Bank of Japan disrupted our initially planned content.<\/p>\n

If you have any questions or concerns about your portfolio, please feel free to reach out. We’re here to provide personalized advice and support to help you stay focused on what matters to the success of your wealth plan.\u00a0Spoiler alert: It has very, very little to do with the value of the yen.<\/strong><\/p>\n

Gold Seal Insights<\/strong><\/h2>\n

\"Brendan<\/p>\n

Brendan’s Banter<\/span><\/h2>\n

In my opinion technical analysis is best used when the markets are in pullback or correction mode. This analysis provides a picture of where the markets should find support (previous levels investors are inclined to invest). When the upward sloping line (upward trendline), from October 2023, was broken late last month, the “charts\u201d would suggest further downside was evident. The market was looking for a reason to take a breather. The first increase in interest rates in Japan after almost 15 years (and the effect of the \u201ccarrying trade\u201d as Ryan so eloquently described) and the negative jobs data in the U.S. gave the markets that reason it was looking for.<\/p>\n

Most investors will ask: Are we there yet? My short answer is, I don\u2019t think so. With the election looming and the U.S. economy showing signs of recession, it may take a while (weeks\/months) before the market continues its upswing.<\/p>\n

The good news is that the relative strength index (a score of 30 represents oversold markets and 70 represents overbought markets) is currently reading 33.22 suggesting the bottom is nearby. At 4950 on the S&P 500 (approx. 5% lower from here) we would reach the previous bottom back in April. Future economic data and the central banks\u2019 decision on interest rates will be the defining factors.<\/p>\n

\"Brendans<\/p>\n

\"Tanya\"Tanya’s Tips: Resist the emotional rollercoaster<\/span><\/h3>\n

There will always be events that cause ups and downs in the financial markets, and it’s easy for many to overreact to short-term news. However, it’s our behavior rather than market volatility, that frequently poses the greatest challenge to successful investing. Adjusting our mindset to recognize that market fluctuations are natural, normal, and healthy aspects of investing is essential.<\/p>\n

I often encounter clients eager to invest their cash during a market peak. My advice is to hold off until a more opportune moment arises (namely, a market downturn), allowing for investment at more favorable valuations. However, when such opportunities present themselves, these same individuals not only hesitate to invest the previously earmarked cash but also express a desire to liquidate other components of their portfolio.<\/p>\n

Something seems wrong here, doesn’t it?<\/p>\n

To be a seasoned, successful investor, we must resist the urge to react impulsively and instead focus on the quality of our investments and our long-term goals and objectives. The Gold Seal Financial Group is here to provide guidance and support in this regard.<\/p>\n

Noteworthy Links<\/strong><\/h2>\n