💰 5 Fact Friday: The September Slump Strikes Again

MARKETS
1. The September Slump Strikes Again ⚠️

September started with a thud as stocks logged one of their worst days in two years.

The S&P 500 slid 2%, dragged down by Nvidia. The AI giant tanked 9.5%, wiping out over $270 billion in market cap—a record-breaking single-day loss for a U.S. company.

So, why the sudden plunge? It’s a perfect storm of factors.

1. The AI hype train is losing steam. Consumer staples—not tech—took the crown as the best-performing sector last month.
   
   Microsoft, Amazon, Google, and Meta are set to spend a combined $100 billion on AI training next year, but investors are still skeptical. This AI spending spree seems unsustainable until it starts generating real revenue.
   

2. The latest U.S. manufacturing data shows the sector is shrinking—thanks largely to rate hikes. This likely contributed to the VanEck Semiconductor ETF ($SMH) plunging 7.5%, its worst day since March 2020.
   

3. Let’s not forget the dreaded September curse. Historically, September has been the worst month for stocks, with the S&P falling an average of 2.1% since 1928. And with more volatility on the horizon, this year may be no different.
   

4. While markets have been eagerly awaiting rate cuts, the reality is that the excitement dies down once the cuts hit. The first rate cut often signals economic weakness and typically leads to below-average market returns.
   
   Data from Charles Schwab shows that, on average, markets experience a 14% drawdown within a year of the Fed’s first cut.
   
   Of course, rate cuts often come in response to crises, so we may see a more measured response. But you have to be wary anytime you utter the phrase, “this time is different.”

What Should You Do?

If you’re in it for the long haul, brace for the bumps.

Remember, the biggest up days tend to follow the worst down days, so resist the urge to time the market. If you’re prone to panic-selling, maybe don’t peek at your brokerage account for a while.

If you’re more short- to medium-term focused, consider buying Treasuries to hedge against a potential pullback. Just be aware—you might miss out on some of the recovery too.

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ECONOMY
2. Don’t Blame The Grocery Stores 🛒

The idea that corporate greed is driving inflation has gained a lot of attention lately, with grocery stores often taking the blame for rising prices.

But greed isn’t the problem here—at least not in the way most people think.

Corporations are always greedy. That’s the nature of business. Every company wants to raise prices, maximize profits, and squeeze out competitors. But in the hyper-competitive grocery market, they simply can’t.

Most grocery chains run on razor-thin margins—typically just 1% to 3%. They sell commodity goods, so any significant price hike would send customers running to competitors for the exact same item at a lower price.

In fact, grocery competition is so fierce that stores often sell products at a loss just to get people in the door. Hello, $5 rotisserie chickens!

So if corporate greed didn’t create inflation, what did?

A combination of two factors: the money supply and supply-demand imbalance.

Between 2020 and 2021, the U.S. printed 40% more currency, creating a massive surge in demand. Supply couldn’t keep pace due to labor shortages and logistics disruptions.

This created the perfect storm—too much money chasing too few goods.

Think of it this way: Say 100 people show up at the grocery store, but there are only 10 loaves of bread. With so much demand and not enough supply, the price of bread gets bid up as everyone competes to buy it.

Today, the U.S. money supply has shrunk by about 2% since 2022. As a result, inflation has cooled to roughly 2.5%.

Corporations aren’t any less "greedy"—there’s just less artificial demand in the system.

The bottom line: Inflation wasn’t driven by price gouging, but by an influx of new money. Now that the flood is receding, so are price pressures.

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INVESTING
3. When AI ETFs Miss The Mark 🎯

Imagine betting on the right horse and still losing—welcome to AI ETFs in 2024.

Despite Nvidia ripping 120% and the VanEck Semiconductor ETF rising 33% year to date, several AI-themed ETFs have actually lost money this year.

How? The devil's in the details.

ETFs have made investing more accessible and opened the door for many, but they can also obscure your positions. In this case, investors may not fully understand what they’re holding.

Market-weighted indices like the S&P 500 and VanEck Semiconductor ETF ($SMH) saw big gains because Nvidia dominates their portfolios.

But in equal-weighted AI ETFs, the exposure to Nvidia is much smaller, spreading their investment across lesser-performing companies.

Lesson 1: Know what you own. Equal-weighted ETFs may offer more diversification, but they are better suited for bear markets (📉). In bull markets (📈), they tend to underperform.

Lesson 2: Thematic ETFs often launch when hype is at its peak, meaning you could already be late to the party.

Lesson 3: Fees. Most AI ETFs charge around 0.75% while the S&P 500 ETF $VOO charges 0.03%. For 25x the fees, thematic investors got less Nvidia and worse performance. Ouch.

Of course, this trend could reverse if smaller AI bets take off, but it’s a cautionary tale. The challenge of identifying a big theme, timing it right, and overcoming fees often proves more trouble than it’s worth.

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PERSONAL FINANCE
4. Freeze Your Credit In 10 Minutes 🔒

Hackers recently exposed the personal data of 2.7 billion people, including Social Security numbers, addresses, and birthdates. The source? National Public Data—a company that gathers and sells personal information for background checks.

With this sensitive data now in the wrong hands, identity thieves can open credit lines or access your accounts. If you’re part of the breach (and you probably are), it’s time to act.

Freezing your credit can stop thieves from opening new accounts under your name. It’s free, quick, and effective.

Here’s how to do it in 3 easy steps:

1. Contact the Credit Bureaus

   • Experian: Call 888-397-3742

   • Equifax: Call 888-378-4329

   • TransUnion: Visit this link and create a free account

2. Provide Your Info
   You’ll need your Social Security number, date of birth, and a few basic details to verify your identity.

3. Confirm the Freeze
   Once confirmed, your credit is locked. No new accounts can be opened until you choose to unfreeze it.

It only takes about 10 minutes to safeguard your credit—and you can always lift the freeze when necessary. Taking action now can save you from much bigger headaches later.

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STOCKS
5. Guess That Stock 🧐

Think you know your S&P 500 companies?

Let’s put your market knowledge to the test with our first Guess That Stock challenge. Here are five clues to help you crack the case:

1. This company is widely known for its PCs, notebooks, and monitors, but AI is now the key to its growth.

2. Revenue surged by 9% last quarter, largely driven by an 80% increase in server and networking sales.

3. It just raised its full-year guidance, projecting up to $98.5 billion in revenue, thanks to strong AI demand.

4. It’s data center division now makes up nearly half of this company's revenue—up from 37% a year ago.

5. With a forward P/E ratio of 12, this stock remains attractively valued compared to its peers, despite its 43% rise this year.

Got a guess? Tap here to reveal the answer → 

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