Market Minute – Week of January 29

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.

Last week was another solid week for stocks in general, with the S&P 500 posting a gain of just over 1% and smaller companies, as measured by the Russell 2000, rising 1.75%. Bonds were relatively flat, with the US Aggregate Bond Index rising 0.10% in price and yielding 4.74%.

All-Time Highs

JP Morgan points out that, with the markets hitting new all-time highs, many investors who have been in cash are worried they missed their opportunity and must wait for a pullback to buy in. However, as they write, there is an old “key market adage: strength begets strength,” with markets often continuing to push higher. They remind us that on average the S&P 500 hits new highs 20 times each year, and their chart of the week shows that investing when the market is at a new high beats investing on random days. From my point of view, this backs up the idea that we never know what the market might do in the short – term, but in the long term the best time to invest is when you know you can stay invested regardless of what happens.

Will Interest Rates Be Cut?

Much of the recent rally in stocks and bonds is based on market expectations that the Fed will start cutting interest rates aggressively during 2024. Just as the expectation of rising rates hurt the markets in 2022, Fed easing (lowering rates) is seen as a positive for the markets. But, as Sarah Hansen from Morning Star wrote this week, “Traders are notoriously bad at predicting interest rate moves.” While traders may be accurate about what the Fed may do in the next month, there is so much economic data that comes out between FOMC meetings that trying to predict moves three or six months out, let alone for a year, is very difficult. Hansen points out that even the Fed’s expectation for rates usually does not fit with their actual movements. The bottom line is that a return of inflation and an economic slowdown or even recession are still a real possibility. We need to stick to our long-term investment plans and not worry about what the FOMC does with interest rates now or over the next year.

Coming This Week

The Federal Reserve meets on Wednesday. The expectation is that they will leave rates unchanged at this meeting. Nonfarm payroll data will give a glimpse of how the labor market is holding up.