The Sunday Drive - 09/01/2024 Edition [#126]

Musings and Meanderings of a Financial Provocateur

A Sunday Drive Around the Internet

👋🏼 Hello friends,

Greetings from Saratoga Springs, NY. Let’s enjoy a leisurely Sunday Drive around the Internet.

🎶 Vibin'

It’s Labor Day weekend and the unofficial end of summer. I hope it’s been a good one for you. For my family and I, it’s been crazy busy, mostly in a good way.

So to bid adieu to summer, this week I’m vibin’ to the outro song from the 1982 movie, Fast Times at Ridgement High. This film was an important part of the coming of age for my cohort. I mean, who among those of my era didn’t order a pizza and try to have it delivered to one our classrooms!?!? Totally a right of passage for the early ‘80s.

I hope you enjoy Goodbye, Goodbye by Oingo Boingo from the soundtrack to Fast Times at Ridgemont High.

💭  Quote of the Week‌

“Getting old is a fascinating thing. The older you get, the older you want to get.“
— Keith Richards

📈  Chart of the Week

Federal Reserve Chairman Jerome Powell recently spoke at the meeting in Jackson Hole, WY and essentially told us all that there will be one or more cuts to short term interest rates in September.

This marks a shift in interest rate policy that will start the process of reversing the fastest interest rate hiking cycle in history which began in early 2022.

Most investors are left to wonder then, “What happens next?”

This week’s Chart highlights the history of equity market performance over the 3, 6, and 12 month periods following the first interest rate cut in an easing cycle.

In looking at the Chart, the conclusion I draw is largely inconclusive.

But…

One thing I think we might take away from history (past performance is no guarantee of future results™) is that the first 3 months following the first cut in rates produce weak equity market performance on average, whereas the months following that produce positive results on average.

Another aspect of this particular upcoming easing cycle which we might keep in mind is that historically, rate cuts don’t typically happen when the equity markets are near all time highs.

So what are we to make of this?

My fearless forecast remains intact. My base case expectation is that we will likely see a topping out of the Magnificent 7 stocks that have driven equity market performance over the last few years. This would happen in conjunction with a broadening of participation in smaller cap stocks - and perhaps but not necessarily “small cap” stocks, particularly in more interest rate sensitive sectors.

From where we sit today in terms of equity market valuations, another way of describing this dynamic would be a shift (hopefully in an non-violent way) from a growth stock cycle to a value stock driven market.

If that dynamic does come to pass, it really would be a “this time is different” moment in that we have an equity market value cycle that begins at or near all time highs, when historically that usually happens after significant market drawdowns.

Feels like uncharted waters we are navigating.

So I guess by way of advice, I offer this. Stay sharp. Eyes open. Wear your life preserver, and don’t let the canoe turn over on top of you. 😉

🚙 Interesting Drive-By's

💡 History is in the Making - from Stephen Davies [Link]

🤔 A Primer on the Current State of Longevity Research - from Abhishaike Mahajan [Link]

📉 Sequence Risk Can’t be Ignored - from Rethinking65 [Link]

💰 Private Equity Firms Have Amassed $1tn in ‘Carry’ Fees - from FT [Link]

❤️ Bride Asks Her 83-Year-Old Grandma to be a Bridesmaid - [Link]

👋🏼 Parting Thought

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If you have any cool articles or ideas that might be interesting for future Sunday Drive-by's, please send them along or tweet 'em (X ‘em?) at me.

Please note that the content in The Sunday Drive is intended for informational purposes only, and is in no way intended to be financial, legal, tax, marital, or even cooking advice. Consult your own professionals as needed. The views expressed in The Sunday Drive are mine alone, and are not necessarily the views of Investment Research Partners or Cache Financials.

‌I hope you have a relaxing weekend and a great week ahead. See you next Sunday...

Your faithful financial provocateur,

-Mike‌

If you enjoy the Sunday Drive, I'd be honored if you'd share it with others.‌‌

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