September Newsletter to Clients

Enjoy this month’s edition that features a welcome to a new member of the team, a review of the stock market so far this year and results from a survey of Americans on how much it takes to be wealthy.

I would like to welcome Chelsea Hale to the Moneywatch team! Chelsea joined us in June and is our Operations Manager. She is a proud alum of the University of Kentucky who loves cheering on the Wildcats. When she isn’t watching sports or diving into spreadsheets, she enjoys crafting, cooking and spoiling her three cats.

The U.S. stock market has been fabulous so far this year. There, I tempted fate and said it out loud so everyone can hear.

Whether investors piled into stocks to take a slice of company earnings that continue to grow or whether investors are betting on the Federal Reserve to lower interest rates at its September meeting, the results have been a superb first eight months of the year for stocks. Let’s take a look at each of these issues:

First, 79% of the S&P 500 Index of large, U.S. companies have reported earnings above expectations for the 2^nd quarter of 2024. Looking back over the last year, the earnings growth rate for those companies is 10.9%, the highest growth rate since the fourth quarter of 2021. Investors have noticed and, as we know, a company’s stock price is driven by what those investors believe is a fair price to pay for the company’s future earnings.

Second, stocks do better when interest rates fall because their borrowing costs can decrease plus the value of their future earnings increases. As the Fed believes inflation is nearing their preferred rate of about 2%, they may need to lower their benchmark rate back toward a “normal” state. The effect on the economy of adjusting interest rates works more slowly than turning an aircraft carrier so the Fed wants to lower rates before the economy falls into a recession but not so soon as to invite more inflation. The market expects the Fed to lower interest rates by .25% at their September 18 meeting – let’s hope they find their Goldilocks rate is just right for the economy and the stock market.

Here are the market results so far this year through the end of August:

• S&P 500 – up 19.5%;
• Russell 2000 of small, U.S. stocks – up 10.4%;
• MSCI EAFE index of international stocks – up 12.4%;
• U.S. Aggregate Bond Index – up 3.1%.

How much money do you think you need to be rich?

This is a question asked by Schwab since 2017 in its annual Modern Wealth survey. So, what’s your answer? How do you think Americans surveyed answered this question?

The survey consensus for 2024 was that $2.5 million of net worth qualifies you as wealthy. Net worth would be all your assets (investment assets, retirement accounts, checking and savings plus equity in a home) minus your liabilities (any amounts you owe such as your mortgage, car loans, student loans and credit card debt).

Not surprisingly, different generations set different thresholds for wealth: Baby Boomers said $2.8 million is wealthy while Gen Zers say only $1.2 million.

“Not surprisingly, respondents with a financial plan gave themselves higher marks on their savings and investment rates, their financial literacy, and retirement readiness,” according to Rob Williams, Schwab’s managing director of financial planning.

We get asked occasionally by clients how their portfolio compares to others in the same age group. I always answer the same way: it doesn’t matter how much you have compared to others, how much you have only matters compared to how much you plan to spend after you stop working. That number is different for all of us and it is why we plan.

Thank you for your continuing confidence.

Ramsey Bova, President and Owner, CFP®