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This ETF is different from traditional ETFs. Traditional ETFs tell the public what assets they hold each day. This ETF will not. This may create additional risks for your investment. For example:

 - You may have to pay more money to trade the ETF’s shares. This ETF will provide less information to traders, who tend to charge more for trades when they have less information.

 - The price you pay to buy ETF shares on an exchange may not match the value of the ETF’s portfolio. The same is true when you sell shares. These price differences may be greater for this ETF compared to other ETFs because it provides less information to traders.

 - These additional risks may be even greater in bad or uncertain market conditions.

 - The ETF will publish on its website each day a “Proxy Portfolio” designed to help trading in shares of the ETF. While the Proxy Portfolio includes some of the ETF’s holdings, it is not the ETF’s actual portfolio.

The differences between this ETF and other ETFs may also have advantages. By keeping certain information about the ETF secret, this ETF may face less risk that other traders can predict or copy its investment strategy. This may improve the ETF’s performance. If other traders are able to copy or predict the ETF’s investment strategy, however, this may hurt the ETF’s performance. For additional information regarding the unique attributes and risks of the ETF, see the Principal Risks section of the prospectus.

1 New accounts with a minimum investment amount of $50 are offered through the Thrivent Mutual Funds "automatic purchase plan." Otherwise, the minimum initial investment requirement is $2,000 for non-retirement accounts and $1,000 for IRA or tax-deferred accounts, minimum subsequent investment requirement is $50 for all account types. Account minimums for other options vary.

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Contact your financial professional or brokerage firm to understand minimum investment amounts when purchasing a Thrivent ETF.

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AUGUST 2024 MARKET UPDATE

Volatility surges

08/07/2024

Two financial analysts studying market data on screens
WRITTEN BY:
Chief Investment Strategist
WRITTEN BY:
Steve Lowe, CFA,Chief Investment Strategist

Thrivent Asset Management contributors to this report: John Groton, Jr., CFA, director of administration and materials & energy research; Matthew Finn, CFA, head of equity mutual funds; and John Liegl, CFA, investment product manager


Key points

Rise in volatility

Questionable earnings and mixed economic data contributed to a slowing economy.

Positive sales

July retail sales grew, going against expectations.

Jobs slow down

Rising unemployment and fewer added jobs created tension in the markets.


Chart summarizing the performance of select market indexes, 10-year T bonds, and oil.

 

Uncertainty and volatility rose in July, fueling a correction in stocks that gathered steam into August. The recent stock market volatility was not unexpected given the significant run up in the markets from the beginning of the year resulting in relatively rich valuations. For instance, the so-called Magnificent Seven group of mostly large technology stocks peaked with a year-to-date return of greater than 50% in mid-July.

Although geopolitical uncertainty rose in July and domestic political news dominated headlines for much of the month, the U.S. stock and bond markets were generally focused on the country’s economic outlook. For the most part, the news was supportive: Retail sales remained robust, boosting confidence in the strength of the consumer, and second quarter gross domestic product (GDP) was reported at 2.8%—significantly above both the first quarter’s 1.4% gain and investor expectations. Even inflation fell more than the market expected, with the year-on-year Core Consumer Price Index (CPI) rising 3.3%, the smallest increase since April 2021.

But after reaching a new all-time high on July 16, the S&P 500® Index began a slide that gathered increasing momentum into early August. Economic data released late in the month was more mixed. For example, July manufacturing data slumped for the fourth consecutive month, according to the Institute of Supply Management (ISM), and earnings stumbles by select mega-cap companies began to raise questions about the size of their investment in artificial intelligence (AI) infrastructure. Microsoft Corporation, one of the leaders in AI spending, reported slowing growth in its cloud-computing business while simultaneously forecasting heavy spending on data center investment. Similarly, Alphabet Inc. reported sharply higher costs, while Amazon.com missed its revenue targets and provided disappointing guidance.

If questionable earnings, mixed economic data and geopolitical headlines were a few snowballs starting to roll downhill, it was July’s employment report (released on August 2) that saw them merge into an avalanche. While the employment data was weaker (new jobs created were low at 114,000, well below expectations, and the unemployment rate rose) the market’s severe reaction suggests the data may be the proverbial straw that broke the camel’s back as concerns over a slowing economy increased.

The shift in sentiment was dramatic and stock and bond market volatility surged into August. By the end of July, the CBOE Volatility Index® (VIX®), a common measure of equity volatility and sometimes nicknamed “the fear index,” had risen by nearly 50%, setting a new three-month high. The rapid spike in volatility continued to escalate through early August. In capital markets, concerns heightened that the U.S. Federal Reserve (Fed) was now behind the curve, and would have to cut interest rates three to four times in the remainder of the year, possibly with one unusually large 50 basis point cut. Two-year and 10-year U.S. Treasury yields dived through their year-to-date lows.

Outlook: Recent economic data and the market’s reaction have elevated the risks to our base-case scenario that the U.S. economy will achieve a soft landing. We have long cautioned that economic turning points can be volatile, and have recently recommended investors maintain a more cautious positioning, favoring high-quality assets in both stocks and bonds given the recent more mixed economic signals. We also noted that these more volatile environments can provide relatively attractive investment entry points in the event markets correct.

Markets have done more than a simple or orderly correction. The benchmark Japanese stock index, the Nikkei 225 Index, fell more than 12% on the evening of August 4—a move echoing the volatility of its 1987 collapse. The sharp decline’s proximate trigger was a rapid strengthening of the Japanese yen related to rising Japanese interest rates and increasing expectations that the Fed will cut its target rate deeper and more quickly. In the U.S., the VIX has touched levels not seen since the onset of the global pandemic, when it peaked around 75. Meanwhile, benchmark 10-year Treasury bonds have seen their yields collapse from near 4.3% on July 24 to well under 4% in early August..

While we believe a market correction in the current environment is both reasonable and healthy, the current volatility is extreme, fueled in part by the unwinding of positioning from leveraged investors. In our view, mixed economic data, uncertainty about the path of interest rates and concerns about geopolitical risks all warrant caution.

The VIX is currently signaling that uncertainty is akin to the onset of the global pandemic. In the last 25 years, the VIX has reached the August 5 (intra-day) levels only three times before: The COVID-19 pandemic, the global financial crisis and the dot-com burst. While we do have some concerns about the outlook for the U.S. economy, we continue to believe investors are better served by focusing on the long-term fundamental outlook, and by staying invested in the market with positioning around neutral in terms of risk tolerance, such as holdings of equities versus fixed income. Additionally, we expect U.S. Treasury bonds to serve as a counterbalance to any further decline in equities, as we believe additional economic and market weakness is likely to drive interest rates lower and bond prices higher. Furthermore, we believe in active management and recommend increasing or decreasing risk on the margin as the outlook evolves and potential opportunities arise.

Our expectation is that market volatility likely will continue through the remainder of the year. What could dampen the volatility? Confirmation that, while the economy has slowed, growth continues; the start of a rate easing cycle by the Fed; and healthy corporate earnings reports. Also, it’s important to remember that while the economy is slowing, it’s still growing.

Nevertheless, we understand that tolerating high volatility can be stressful, even for those holding a balanced portfolio of stocks and bonds, and thus encourage investors to reach out to their financial professionals if they have questions or concerns.

Drilling down

U.S. stocks drop

The S&P 500 Index rose 1.13% in July from 5,460.48 at the June close to 5,522.30 at the end of July. The total return of the S&P 500 Index (including dividends) for the month was 1.22%, bringing the year-to-date return to 16.70%. However, after setting a new all-time high mid-month, the market began a correction which accelerated into August.

The NASDAQ Composite Index® fell in July, down 0.75% from 17,732.60 at the end of June to 17,599.40 at the July close.

 

Chart depicting the value of the S&P 500 Index from August 2023 to July 2024

 

Retail sales remain resilient

June retail sales were unchanged from May 2024 at 0.0%, but grew 2.3% from June 2023. The results were well received by the market as consensus expectations were for sales to fall over the month. The month-on-month strength was driven by non-store retailers (primarily online sales), up 1.9%, and building materials and gardening equipment, which rose 1.4%. Gas station sales were the largest detractor (at -3.0%), followed by auto sales (at -2.3%). The year-on-year rise was led by non-store retailers (primarily online sales), which rose 8.9% relative to last June. Food services and drinking places remained strong, up 4.4% on the year. The largest detractor for year-on-year sales was the furniture and home furnishing category, which remained subdued given slower home sales as a result of high home prices and mortgage rates.

Job growth disappoints

The U.S. economy added 114,000 new jobs in July, according to the Department of Labor’s August 2 report, well below consensus expectations of approximately 185,000 new jobs. The unemployment rate also rose to 4.3%, its highest level since October 2021. Average hourly earnings, which rose 0.2% for the month and 3.6% from July 2023, were also below expectations, at 0.3% and 3.7%, respectively.

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Sector strength broadens

Weakness in the communications services and information technology sectors (down 4.01% and 2.09%, respectively) weighed on the S&P 500 Index in July, but strength in the other nine sectors more than offset their weakness. The real estate sector led the market (up 7.22%), followed by utilities (up 6.79%) and financials (up 6.46%). These three sectors all benefited from expectations for the economy to achieve a soft landing and for interest rates to fall.

The chart below shows the past month and year-to-date performance results of the 11 sectors:

 

Chart depicting the July 2024 and year-to-date returns of 11 S&P 500 sectors.


Treasury yields slide

The yield on the benchmark 10-year U.S. Treasury retreated in July, falling from 4.37% at the end of June to 4.05% at the July close, largely due to concerns about the outlook for U.S. economic growth.

The Bloomberg U.S. Aggregate Bond Index rose 2.34% in July, improving its year-to-date return to 1.61%.

 

Chart depicting U.S. Treasury 10-year bond yields from August 2023 to July 2024


Oil prices fall

Oil prices fell in July, largely due to expectations for weaker economic growth amid persistently high interest rates. A barrel of West Texas Intermediate, a grade of crude oil used as a benchmark in oil pricing, fell 4.45% over the month, from $81.54 at the end of June to $77.91 at the July close. Gasoline prices at the pump rose modestly in July, up 0.84%, with the average price per gallon rising from $3.56 at the end of June to $3.59 at the end of July.

 

Chart depicting the price per barrel of West Texas Intermediate crude oil from August 2022 to July 2024.


International equities rise

International equities rose in July, benefitting from stronger-than-expected growth in the eurozone economy despite a contraction in the German economy. The MSCI EAFE Index, which tracks developed-economy stocks in Europe, Australasia and the Far East, rose 2.89% over the month, from 2,314.63 at the end of June to 2,381.44 at the July close.
 

Chart depicting the value of the MSCI EAFE Index from August 2023 to July 2024


Before making a change in your investment portfolio, you may wish to consult with a financial professional to determine how that may align with your long-term goals and objectives.

 

Media contact: Callie Briese, 612-844-7340; callie.briese@thrivent.com

All information and representations herein are as of 08/05/2024, unless otherwise noted.

The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Thrivent Asset Management, LLC associates. Actual investment decisions made by Thrivent Asset Management, LLC will not necessarily reflect the views expressed. This information should not be considered investment advice or a recommendation of any particular security, strategy or product. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance.

This article refers to specific securities which Thrivent Mutual Funds may own. A complete listing of the holdings for each of the Thrivent Mutual Funds is available on thriventfunds.com.

The S&P 500® Index is a market-cap weighted index that represents the average performance of a group of 500 large-capitalization stocks.

NASDAQ – National Association of Securities Dealers Automated Quotations – is an electronic stock exchange with more than 3,300 company listings.

The Bloomberg U.S. Aggregate Bond Index is an unmanaged index considered representative of the U.S. investment-grade, fixed-rate bond market.

The CBOE Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. VIX is the ticker symbol for the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market’s expectation of 30-day volatility.

The Nikkei 225 Index is a price-weighted average of 225 top-rated Japanese companies listed in the first section of the Tokyo Stock Exchange.

The Core Consumer Price Index (CPI) measures changes in the prices of goods and services, with the exclusion of food and energy.

The MSCI EAFE Index is an unmanaged index designed to represent the performance of large and mid-cap securities across 21 developed markets, including countries in Europe, Australasia and the Far East, excluding the U.S. and Canada.

Any indexes shown are unmanaged and do not reflect the typical costs of investing. Investors cannot invest directly in an index.

Past performance is not necessarily indicative of future results.

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