Capitalist Investor

Navigating the September Stock Slump, Ep. 282

• Strategic Wealth Partners

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In the latest episode of the Capitalist Investor hosts Derek and Luke cover a range of pressing issues affecting both the market and the broader economic landscape. From seasonality in the stock market to the global economic outlook, the discussion is packed with valuable insights.

Seasonality and Market Trends
One of the main focuses of this episode was the impact of seasonality on stock market performance. Historically, September has been one of the worst months for stocks. Luke highlights that since 1929, September has generally seen a decline of around 2%, and over the past decade, the average drop has been 4%. They dig into whether this trend will continue this year, considering the current market dynamics and historical trends.

Nvidia and the Magnificent Seven
Nvidia’s recent stock slump is part of a larger discussion about the "Magnificent Seven" stocks—Nvidia, Apple, Amazon, Google, Facebook, and others. Luke and Derek delve into whether these tech giants will continue to drive market performance or if the momentum is shifting. The concern around their future profitability and growth potential is central to this topic, especially as investors are reevaluating their positions in these heavy-weight stocks.

Stock Pickers Market
Both hosts emphasize the assertion that we are now in a stock picker's market. The conversation revolves around the diminishing effect of just investing in the top-performing tech stocks. Luke points out that the bottom 493 stocks in the S&P 500 are expected to deliver most of the market's earnings growth going into 2025, shifting the focus from a handful of tech giants to a broader array of companies. This shift could present new opportunities for discerning investors.

Global Investment Opportunities
The episode also covers the potential for international markets to outperform the U.S. markets. Luke suggests that with the U.S. potentially facing economic downturns and volatility, investors might start directing their capital to emerging markets like India, Mexico, and Brazil. These markets offer growing middle classes and significant economic potential, presenting a compelling case for international diversification.

Market Sentiment and Election Impact
With the upcoming election, market sentiment is expected to be volatile. Derek and Luke discuss the potential impact of the election on the markets and the importance of tuning out the noise. They stress that investors should focus on key indicators like unemployment rates and earnings growth rather than getting caught up in sensational headlines. For investors, maintaining a long-term perspective is crucial in such uncertain times.

This episode of the Capitalist Investor provides a comprehensive overview of current market conditions and the factors influencing them. From the expected September slump to the rise of international markets, Derek and Luke offer valuable insights that can help investors navigate the complex financial landscape.

Remember, the key takeaway is to always consider the broader market dynamics and not get swayed by transient news cycles. And as always, consult a qualified professional for your individual investment needs.

Stay tuned to the Capitalist Investor for more in-depth analysis and investment strategies.

Hope you enjoy the recap and insights from the Capitalist Investor's latest episode. Happy investing!

Hello, and welcome to this week's episode of the Capitalist Investor. As always, you have me, diamond hands d, and Tony's on assignment this week, so we have Luke Lloyd. Apparently, it's 100, like, in 15 degrees or something in Scottsdale right now, where he's at. Oh, really? Yeah. I saw it was, like, 100 days over 100 degrees or something ridiculous that hit yesterday. Is it global warming, Derek? Um, the Internet doesn't seem to think so now. The Internet doesn't? No. That's surprising. There was, um. Who knows if this is true? I was just scrolling yesterday, but there was, like, a study that came out yesterday that said CO2 doesn't really have anything to do with. With global warming. Oh, it looked like an official study, not like someone just tweeting on Twitter, but yeah. So, um, I'll tell you, the weather. Patterns are getting kind of weird, though. Like, we had a tornado come through here and Cleveland just a few weeks back. You know, it seems like the rain. Like, I was just back in my hometown, and I went through two huge pour down rains. Like, I don't know, it just feels like. I don't know. Maybe it's not scientific. No, it's just anecdotal kind of. Maybe evidence what I've seen. Just, it feels like the weather is getting worse. Yeah, it seems that way. Yeah. But, hey, maybe we could leave our conspiracy rants for the end. All right, we'll talk. We'll talk aliens and stuff at the end of this one, but, yeah, so yesterday. So probably two days ago now, after recording this, Nvidia took a big tumble, huge down day for the Nasdaq as well. So we thought we'd kind of talk about that and kind of seasonality as well. So September, historically one of the worst months for stocks. So we'll dive into that quickly, take a look to see if we think that'll happen this year. So what do you think, Luke, on the Nvidia news yesterday? Well, it's really around a lot of concerns around seasonality, right? You hit the nail on the head with September. September is the worst month in the market. If you go back to, like, the Great Depression times, even since 1929, it's even been worse the past decade. So I think it was, like, since 1929, September is down usually, like, a little over 2%. Historically, the past ten years, September has been down, on average, a little over, I think, 4%. So the kind of thought process and question we got to pose and ask is, what's September going to look like this year? Is it going to be worse than average? Is it going to be better than average? And I think you have to look at actually the market dynamics to really understand that question. So you have like the Nvidia's apples, Amazon's, Google's, Facebook of the world top seven stocks, mag seven, they're like 40%. It's like 40% of the S and P 500 and maybe 50% of the Nasdaq. It's very heavy weightings for those top names, and they've been the AI place. And I think investors are starting to kind of digest and think like, are they actually going to add the profitability and growth that we wanted to see over the next couple of years? And if you look at actually earnings expectations in the market heading into 2025, as early as next year, the bottom 493 in the S and P 500, we're actually looking to deliver the majority of earnings growth in the market. That hasn't happened for years. The top seven stocks has added essentially all the earnings growth in the market. I think this goes back to what we've talked about a lot, is it's now a stock pickers market. The bottom $4.93. You want to start looking at those outside of maybe the mag seven. You can't just throw money at the wall at the mag seven and expect to make money. I think that seasonality component of it, given the election uncertainty coming up, too, I think that throws a wrench into it. People are taking risk off the table right now. It's only, what, two months before the election, people are taking some risk off the table, reevaluating and repositioning some assets. I don't think this rotation is done happening. We've been talking about this rotation for almost a year now, honestly, and we know we're headed into a seasonally bad time for stocks in general, but probably specifically for the semiconductors and chip makers and things like that. How do you think, if we can put the election to the side for a minute, which is difficult to do, if we see the cracks starting to form in those big seven stocks, what do you think 2025 is going to look like, maybe even specifically for the Nasdaq? We don't even have to just say the top seven stocks. Well, I like the question. I hate in both at the same time, the question of what do you think the market's going to do? Because the market really, in my opinion, in today's world, does not dictate actual economics what's going on economically, and it does not dictate what actually is going on in the market. So most people use the S and P and Nasdaq as a reference point. Whatever they're doing is what the broad market's doing. Again, it goes back to my point. When you have such a large weighting in a small amount of stocks, can you really even use the indices as a true index for what's going on in the markets? What I think is going to happen next year is actually what I thought was going to happen this year. I was wrong. I think it actually got pushed back a year because of AI, essentially. I think you're going to see the market kind of be pretty rough over the next year. When I say rough, maybe even a negative year next year from January 1 to the end, but there's still money to be made. I think that you're going to see the indices be volatile, indices be maybe negative. But like I said, the bottom 493 are Russell 3000. A lot of stocks in there. There's going to be a lot of money to be made. Yep, for sure. So the market could be doing bad while everyone's making money in other stocks. That's my point there. Right. Yeah. That's interesting because we've been saying that for a while and it's been true to some degree about it being a stock pickers market. I think you'll see international outperform actually. Domestic, really? Yeah, I think that's a very big possibility. International just has been significantly underperforming forever, essentially. So I think that US has been the spot to be. So the rotation trade doesn't have to be just from top to bottom, big stocks to small stocks or top seven to 493. It could also be from us to other countries because a lot of money has been made here in the US. You want to start thinking how are other portfolio managers, how are those that have made a lot of money where they're going to throw money next? It's very possible they could throw it at other countries. Those emerging market economies. India, that was like where the US was 100 years ago. From a capitalistic free market standpoint. Their middle class is growing significantly. I think incomes are looking to double by 2030. Mexico, obviously with the onshoring. So like even Brazil, I mean, all these south american companies are going to benefit from more onshoring to North America. So I think you want to look at some of those spots. Yeah, the international is interesting. We've talked about small caps before quite a bit, and I still like them going forward to basically the points you've just made there. International, though, is kind of a running joke. It's been on everyone's list to outperform for a while now and it just never has. I shouldn't say never. I don't know those numbers off the top of my head. It seems like it never has performed over the last ten years. It hasn't. Why hasn't? Yeah. So I just wonder. So I go back and forth in my mind all the time on international. I just wonder, though, what the catalyst is going to be. Cause they're having some trouble over there, specifically in Europe. So there's two philosophies. Well, Europe, yeah, I would not be. Europe's too plugged into the US in a lot of ways. You want to look at countries that maybe aren't as plugged in to where they are the ones actually exporting to the US, not importing from the US. So what I mean by that is, I think the catalyst could be. Let me go back to the two philosophies. One philosophy is if the US falls, it brings down the whole world with it. Right. So even if the United States is not looking too hot, other countries won't look too hot either. But there's another philosophy out there that says if the US goes down, that could be the catalyst for money to flow out of the US and pump up other markets and valuations elsewhere. Right. So it's potentially a catalyst that we enter a true recession. Unemployment ticks up over here and money just flows out of the US. What is it going to do? Go to cash? Possibly. But if cash, if they lower rates, cash is going to be earning nothing. So maybe investors will have a risk appetite elsewhere in the world and that's going to increase valuations elsewhere. So I think the catalyst could be the negative aspects of the US. That's another great point. Look at you. Look at you. I don't know if this is actually going to happen. I'm just speaking hypotheticals. All right, well, anytime there's big movements on Nvidia or any of the magnificent seven stocks, it's always big news. So we'll see if, you know, we'll see if this kind of downtrend continues here in the month of September. Any final words? Yeah, so I think it's important to tune out a lot of the noise. There is a lot of noise out there, and it seems like the election headlines just get a crazier and crazier, and I think it's going to get even more crazy over the next couple of months. So at the end of the day, there's two inputs to the market valuation and earnings. Right. So you have to consider, you know, I think unemployment's going to be the biggest key that we have to pay attention to. The rate of change has been crazy from like 3.5% to 4.2% or whatever. We got to pay attention and make sure that doesn't continue because if that does continue, that's when dominance fall. The link with seats we talk about. It's gonna be very important. Yep, for sure. All right, well thank you for listening this week. If you guys have any questions, comments or questions show topics, hit us up at info Connect.com and we'll talk to you next week. The opinions expressed in the podcast are for general informational purposes only and are not intended to provide specific advice or recommendations for any investment, legal, financial or tax strategy. It is only intended to provide education about the financial industry. Please consult a qualified professional about your individual needs.