Market Minute – Week of February 5

Welcome to the “Market Minute” series! In this weekly blog post, Dave provides you with all the latest updates on market and economic trends that you need to stay on top of.

The Federal Reserve Open Market Committee

Rates were unchanged at last week’s meeting, which was pretty much expected. But Chairman Powell commented that it looked unlikely the FOMC would begin cutting rates in March, indicating that they want to see further evidence that inflation is headed toward their 2% target before they take their foot off the economic brakes.

The market, of course, did not like this and responded negatively. As long-term investors, though, we should want to see the FOMC be cautious and respond to data and not worry about immediate market expectations.

Positive Market

Despite the FOMC comments, the market was very positive again for the week, with the S&P 500 up 1.4%. Despite a lousy start to January, the S&P 500 is up 4% overall so far this year.

The Middle East

Affairs in the Middle East got worse last week with a deadly drone attack on U.S. troops that prompted a response attack from our military. These moves caused more volatility in oil prices and threatened maritime trade and global shipping as ships were delayed going through the Suez Canal.

JP Morgan, in their weekly update, points out that while so far these disruptions have not caused an economic fallout, there is a chance that they could lead to renewed inflation if they persist. They go on to comment that global risks like this are typically short-lived and investors are generally rewarded by ignoring them and not reacting in their portfolio. Geopolitical risks, of one kind or another, are always part of investing and we should assume they will always be there rather than try to avoid them.

“Critical” Week For Big Tech Earnings?

 I read in a report from a mutual fund company that this was “a critical week for big tech earnings.” Critical for what? This is a pet peeve of mine. We need to stop making every bit of market and economic news sound like it is “critically important” and that we all must sit up and pay attention.

Yes, big tech earnings will move the markets up or down and provide a hint to what the economy and markets overall may do in the coming months. But for most people who are diligently saving, or who are in retirement and spending according to a well-thought-out plan, this news is far from important and does not require our attention. It is more likely to lead to investors needlessly worrying and thinking they need to act when they should not. Instead, they should ignore such crucial news and focus on the things they can control: their saving, their spending, and their behavior as investors.

Model Change

We are adjusting our portfolio models this week. On the advice of our portfolio advisors at East Bay Investment Solutions, we are reducing our current overweight to short-term fixed income (bonds) and moving back to a more “neutral” position now that interest rates are higher. Short–term bonds pay less interest but stay more stable when interest rates rise and have offered our fixed-income portfolios some protection over the recent cycle. Now that rates are higher, moving money back to intermediate-term bonds allows us to earn more interest, but also provides some upside when interest rates go down. These changes will take place over the next week.

Upcoming Week

ISM Services PMI report