Time to RSVP!

Invitations have been mailed for this year’s Client Appreciation Event and we can’t wait to celebrate with you on September 13^th.

Please send your RSVP card back by Friday, August 23^rd as this year’s event has a plated meal, and we need to know who’s coming and food selections as soon as possible.

Our new Marketing Associate, Jaclyn Fosler, is working on this event. She works remotely in Wisconsin, so you’ll notice the response card is going directly to her there.
 

If you live outside the area, consider making a weekend out of it. Jaclyn’s going to join us all the way from Wisconsin, so don’t let the distance keep you from coming too! September’s a great time to explore Central Oregon. Check out Visit Bend for some ideas.
 

Hello,

As someone who invests in their future, you're likely eyeing what drives investment returns.

But it’s all-too-easy to be distracted by a number of investment myths. These are nothing but short-term noise that can cause you to miss the big picture of long-term gains.

And it’s no one’s fault. These investment myths are so widespread that even seasoned pros might swear by them.

To make smarter money moves, you need to separate fact from fiction and focus on what really matters.

So, let's clear the air.

To help you make informed investment decisions, let’s look at three investment factors that, contrary to popular belief, don’t drive long-term investment returns.
 

#1 Earnings reports
 

Four times a year, investors wait on pins and needles for their favorite companies to release earnings reports. While these reports give an update on how the company is performing and challenges it may be facing, they aren’t a good barometer of long-term investment returns, and investors greatly overvalue earnings reports when considering a potential investment.

If earnings were an indicator of investment returns, we would expect to see earnings growth precede a rise in investment returns, but this isn’t the case. Looking at the S&P Composite Index, we can see that earnings and returns do not align as expected. In fact, over the past century there’s been almost no correlation between earnings growth and investment returns.
 

Takeaway: Earnings should be taken with a grain of salt. Don’t let these quarterly reports influence your long-term investing goals.
 

#2 Geopolitical Crises
 

Regional tensions in Russia, the Middle East, and China, are causing investors to fear a larger escalation.

But history shows that while these occurrences might cause temporary volatility, the market is very resilient to even the most negative geopolitical events.

In the short-term, the market tends to drop 1% following a geopolitical crisis event, with the total average drawdown being only 4.7% to the negative.

When looking at the long-term effects of such events, the picture is even brighter. The average market return in the 12-month period following a major geopolitical crisis was +2.1%, displaying just how resilient markets are, and how these events only had a short-term impact on returns.
 

Takeaway: A geopolitical crisis can cause minor, short-term declines, but have no effect on the long-term market outlook.
 

#3 Periods of extremely high or low valuations
 

When looking at price-to-earnings (P/E) multiples over time, it seems that stocks can go through periods of extremely high (and low) valuations, but they are never sustained. As seen in the chart below, the 25-year average P/E ratio for the S&P 500 is 16.4, and even though the market has fluctuated above and below this average, valuations always revert back toward this average.

In fact, it’s generally only in very specific economic conditions (like near-zero interest rates, the 2008 Financial Crisis, or the COVID pandemic) that valuations deviate from their historical average for any considerable period of time.

Takeaway: Extremely high or low valuations aren’t sustainable, and markets almost always revert back to their historical averages.

If factors like earnings reports and geopolitical events don’t influence stock returns, then what does?  For long-term investors, fundamentals are still the bread and butter of valuing stocks. This includes earnings growth, dividends, and cash flows.

The market will always fluctuate based on recent news and events; however, understanding how much weight to give what you hear (or scroll through) can help you make decisions with a greater sense of confidence.



If you have questions, please don’t hesitate to reach out. We’re here to help.

Until next week,

Your Eagle Wealth Team

The Week on Wall Street

Stocks posted solid gains last week, buoyed by robust economic data and constructive comments from Fed officials.

The Standard & Poor’s 500 Index rose 3.93 percent, while the Nasdaq Composite gained 5.29 percent. The Dow Jones Industrial Average lagged a bit, picking up 2.94 percent. The MSCI EAFE Index, which tracks developed overseas stock markets, powered ahead by 4.31 percent.^1,2

Upbeat Economic News

Three critical economic data points gave investors what they were looking for: wholesale inflation, consumer prices, and retail sales.

Both the Producer Price Index and the Consumer Price Index rose less than expected in July, reinforcing a picture of cooling inflation. The July retail sales report on Thursday was stronger than expected, which added more fuel to the week-long rally.^3,4,5

Market action slowed down on the week’s final trading day, with positive consumer sentiment gains countered only by a drop in housing starts.

It was the S&P 500’s best weekly gain of the year so far and the best since November of 2023. The gains helped erase losses from earlier in the month, when “carry trades” news from Japan unsettled investors.^6,7

Double Assist

Last week’s market rally saw assists from two places: economic data and constructive Fed comments.

On Thursday, Atlanta Fed President Raphael Bostic said he had “a lot more confidence that inflation’s sustainably on its way to 2%,” citing steady drops in CPI. And St. Louis Fed President Alberto Musalem said, “the time may be nearing when an adjustment (to the Fed Funds Rate) may be appropriate.⁸