08.09.2024

Despite a chaotic week, the S&P 500 remains less than 6% below its all-time high. Pockets of the market are in a corrective phase, but the “average” stock has held up quite well. Concerns about a slowdown in economic growth, valuations, AI, and geopolitical tensions have made markets choppier. Still, the economy is on solid footing, and rate cuts are likely just around the corner. Cash on the sidelines and productivity gains remain longer-term catalysts for equities. We remain optimistic about stocks. 

Markets were volatile early in the week due to softer economic data and significant currency fluctuations. Payroll data for July fell short of estimates, raising concerns about the pace of economic growth. As a result, markets have begun to price in more rate imminent cuts. By contrast, Japanese policy is becoming increasingly aggressive. This leads to instability in certain currencies and investment strategies where investors borrow money at low interest rates to invest in higher-yielding assets. However, better-than-expected jobless claims later in the week softened the impact of July’s data. Time will tell whether the softer employment data is a trend or a one-off event. 

Although there are concerns about stock market valuations, prices still appear reasonable for the average stock. Even for the largest companies, recent declines in stock prices have deflated their valuations, but their financial health and performance remain impressive. Earnings estimates for 2024 have come in, with growth projections still around 11%. That is hardly anything to scoff at. It will be important to see earnings contributions broaden beyond the AI developers, but analysts remain optimistic.

We continue to emphasize the importance of stock picking. With the rollout of AI, an election featuring starkly different candidates, and a disjointed global economy, we expect stocks to increasingly trade based on their own merits. We believe focusing on quality, leadership, and strategy will continue to yield positive results. 

Thanks,
Preston May, CBE®
Research Analyst

This report was prepared by Donaldson Capital Management, LLC, a federally registered investment adviser under the Investment Advisers Act of 1940. 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. Information in these materials are from sources Donaldson Capital Management, LLC deems reliable, however we do not attest to their accuracy.

An index is a portfolio of specific securities, the performance of which is often used as a benchmark in judging the relative performance to certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. An index does not charge management fees or brokerage expenses, and no such fees or expenses were deducted from the performance shown. Past performance is not a guarantee of future results. The mention of specific securities and sectors illustrates the application of our investment approach only and is not to be considered a recommendation by Donaldson Capital Management, LLC.

S&P 500: Standard & Poor’s (S&P) 500 Index. The S&P 500 Index is an unmanaged, capitalization-weighted index designed to measure the performance of the broad U.S. economy through changes in the aggregate market value of 500 stocks representing all major industries.