The Rest of the Story
There are some pretty scary headlines coming out of the financial (and regular) media today. I thought it might be helpful to channel my inner Paul Harvey and give you the rest of the story as I see it.
Headline: Warren Buffett slashed his stake in Apple!
Rest of the story: Yes, Buffett’s Berkshire Hathaway did sell approximately half of their Apple holdings during the first half of 2024. However, at the end of 2023, they held more than $174 Billion in Apple shares so even after “slashing” their position, Berkshire still held more than $84 Billion of Apple stock as of June 30th, according to their SEC filing.
After announcing that Berkshire had trimmed their Apple position in May, Buffett explained that it was due in part to concentration risks and tax considerations. Despite the sales, Apple still makes up nearly 30% of Berkshire’s in their stock portfolio and still has nearly twice as much of Apple compared to their next largest position (Bank of America at $41.1 Billion.) It looks to me like the moves of a prudent risk manager, not someone expecting a crash.
Headline: The unemployment rate is skyrocketing!
Rest of the story: The unemployment rate has risen to 4.3% after being at or below 4% from December of ’21 through May of this year. Historically, this is still a very low number. The long-term average unemployment rate (from 1948 to the present) is approximately 5.7%.
For decades, full employment (defined as “the level of employment at which virtually anyone who wants to work can find employment at the prevailing wage”) was thought to be when the unemployment rate was 5% - higher than where we currently sit! Employment is currently softening, but by any historic measure is still really, really good as you can see in the chart below.
Headline: Mortgage rates plunge!
Rest of the story: An individual buyer’s mortgage rate is based on several factors, but the average mortgage rate is based on the 10-year US Treasury yield more than anything else. Treasury yields, especially those with a longer time to maturity, started dropping last week in anticipation of rate cuts by the US Federal Reserve beginning in September – or even sooner.
I saw it suggested that the rate is dropping because banks are panicking. While I’m sure banks aren’t happy about the current rate environment, nothing that’s happened so far is panic worthy.
Headline: The Fed is behind the curve! They need to cut rates now!
Rest of the story: The US Federal Reserve almost without exception moves too late – no matter the direction. They are a group that relies on data and the lag in collecting, organizing, and evaluating that data frequently means that they are slow to react. The good news is that because they wind up in this position all the time, they have playbooks and strategies to move rates that have worked historically to catch up when they fall behind.
Headline: The market is crashing!
Rest of the story: Market corrections (a drop of between 10 and 20%) are normal. On average, a correction happens every year. While corrections are never fun, they aren’t a sign that the markets are breaking.
2024 has been a strong year so far. Through the end of July, the S&P 500 was up 16.7% for the year. The weakness at the end of last week brought the index down to where it was trading in early June, as demonstrated by the red line in the chart below.
Overall, are there concerns in the economy? Of course! There always are! But the fundamentals of the economy and markets remain strong. A mid-year hiccup isn’t unusual and that’s especially true in a Presidential election year – even one without the unprecedented political moves that have happened over the last month or so. I haven’t seen any data yet that has me concerned about the long-term health of the US economy.
Photo by AbsolutVision on Unsplash
