facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog search brokercheck brokercheck Play Pause
%POST_TITLE% Thumbnail

MCF Perspective Moment: The Dog Days of Summer

Prepping for the Fall

As we enter the “Dog Days” of summer, hot & humid >> for the financial markets seem to bring short term violent swings in Aug – Sept period.

As you know, it is very hard or almost impossible to be in the predicting short-term market ups and downs business. The historical returns of the US stock market by month over the past 100 years varied significantly due to a range of factors including economic conditions, geopolitical events, and market sentiment. However, historical data showed that on average, the stock market has exhibited certain seasonal patterns over the long term. According to data from the Stock Trader's Almanac, the average historical returns by month for the S&P 500 index over the past 100 years are as follows:

  • January: +1.0%
  • February: +0.2%
  • March: +1.0%
  • April: +1.4%
  • May: +0.3%
  • June: +0.6%
  • July: +1.0%
  • August: -0.1%
  • September: -1.0%
  • October: +0.4%
  • November: +1.4%
  • December: +1.5%

Note: It is important to note that these historical averages are based on long-term trends and may not necessarily be indicative of future performance. Additionally, there can be significant variation in market returns from year to year and within individual months. Investors should consider a range of factors when making investment decisions and consult with a financial advisor for personalized advice.

Our Equity Bucket is overweight (compared to MCF’s internal portfolio benchmark allocations) value and smaller capitalization equities vs. SP Large Cap – Mega Cap weighted stocks. No doubt these Mega Caps have had an incredible run for the past 2 years, which just by being in the SP 500 Index – investors have benefited immensely. If one took the approach of buying individual stocks, we don’t think many of us would have paid 30-40 times EPS or even in some cases 20 times revenue without profits, so sometimes the indexes help us more than we know.

Our Bond Bucket is structured to benefit from interest rates going lower (boy have they in 3 days – wow!). In addition, we have overweighted the allocation to bonds at the expense of Diversified Investments as the short-term yields are a nice place to sit in our view.

Our Diversified Investment Bucket continues to be underweighted (relative to MCF’s internal portfolio benchmark allocations) as we have been in the disinflation camp for almost 2 years. Go back and find our YouTube “MCF Perspective Moments” videos in the spring, summer and fall of 2022 for a recap >> we made the case that inflation will go much lower – this was when inflation was peaking at 9% annualized! Actually, almost all the traditional market valuation models have been out of whack for the past decade: Shiller PE, Forward PE multiples, Large Cap vs Small, US vs International, US Profit Margins, Market Cap vs GDP (Warren Buffet indicator), private equity money flows vs. public equity, interest rate levels (until past 24 mos.), US short term interest rates exceeding long term – i.e. 90 day TBill vs. 2 Yr UST >> a current -1.41% spread etc. We are consistently tweaking client portfolios back to their investment policy benchmarks more than most can see, as these are small tweaks and many times a family’s own cash flows help balance out and minimize.

You may have heard me make these comments over the past 18 months:

  • We may be switching gears to a massive gain in US Labor Productivity, which supports higher corporate profit margins verses the past 70 years. Why – look at the make-up of American business >> 77% of GDP comes from service businesses which have a much higher profit margin than manufacturing.
  • Most of the corporate debt has been fixed (especially the Large Cap companies) so the rise in interest rates hasn’t really affected the profit margins at this point. As more time goes by, yes, the debt will be rolled into higher cost loans, but the bank loan market is very healthy, with good demand and low delinquencies at this point.
  • Of the 40% of US population with a home mortgage, 92% are fixed and 78% are fixed below 5% >> so not a pain point. As interest rates float lower, we expect housing transactions to pick up. A lot of people haven’t sold their homes to upgrade in the past 2 years because of what was just written. And a lot of new buyers have not been willing to pay the price of new homes nor the costs of financing them. It may be counter intuitive, but we think lower rates will actually lower home prices in the 2025-2026 era. Lots of existing homes to come on the market and lots of new builds.
  • Inflation has been on a down swing since May of 2022 >> we forecasted inflation would go down, even to zero. While our date of zero was this summer, still, not a bad guess as the CPI was at 9% in May of 2022.
  • Thinking the economy will slow down in the later part of 2024 through 2025. Lots of reasons but mostly good. When we say slow down, doesn’t mean backwards, but rather from going 70 miles an hour to 35.
  • Probably will be a big rotation of equity market gains from Mega Cap to Small Cap – which we are well positioned for.

Call us if you are nervous or if something has changed in your financial situation that we haven’t been made aware of. We focus on the things that we can control and prepare for those that we cannot. Preparation - not prediction is one of our core beliefs.

Talk soon, 

Dave Harris, CEO



IMPORTANT DISCLOSURE INFORMATION

MCF Advisors, LLC (“MCF”) is a SEC registered investment adviser. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. More information about the adviser can also be found by visiting: https://adviserinfo.sec.gov/. This is not intended as an offer or solicitation with respect to the purchase or sale of any security. MCF may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by MCF), or any non-investment related content, made reference to directly or indirectly in this blog/newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog/newsletter serves as the receipt of, or as a substitute for, personalized investment advice from MCF. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. MCF is neither a law firm nor a certified public accounting firm and no portion of this content should be construed as legal or accounting advice. A copy of MCF’s current written disclosure statement and customer relationship summary (“Form CRS”) discussing our advisory services and fees continues to remain available upon request. The scope of the services to be provided depends upon the needs of the client and the terms of the engagement. If you are a MCF client, please remember to contact MCF, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services