Your Move, Fed

All eyes will be on the Fed this coming week, as they are set to finally begin reducing rates.

Whether it’s by half a percentage-point or a quarter percentage-point is up for debate.

My money is on a quarter-point-reduction.

This pending decision is obviously big, so it’s been causing a bit of havoc in the markets.

Stocks tumbled recently, giving their worst performance of 2024.¹

And then promptly rallied again. In fact, the S&P 500 and Nasdaq just capped off their strongest week of 2024.

If you’ve been reading my recent emails, you’re probably not surprised.

Let’s talk about what’s going on.

What’s driving the volatility?

Profit-taking, for one.

Markets notched big gains in August, and traders decided to cash in some profits, which drove prices lower.²

Economic concerns are also in focus again.

The latest jobs report showed that the labor market is slowing down, as should have been expected.

August data showed that jobs grew by a lukewarm 142,000, missing expectations.³

Data for prior months were also revised downward, giving July the lowest job creation number since December 2020.

Markets dropped in response to the data, largely out of worries about growth.

This behavior is the flipside of the trend we’ve seen repeatedly this year – where markets reacted positively to “bad” news because traders hoped it would boost the case for a cut in interest rates by the Federal Reserve.

Now, bad news is bad news again. Unless it’s good news!

It’s about as clear as mud.

We can expect this kind of vacillation between optimism and worry to continue in the short run.

What happens next?

Markets have had an overall strong run this year through the end of August.⁴

Now, we may be entering a choppier season for markets.

We have a lot of uncertainty on the horizon: economic news, Fed moves, a presidential election, and geopolitical issues that oscillate between heating up and cooling off.

It wouldn’t be surprising at all to see more volatility or a bigger correction as investors digest Fed policy and economic data.

However, the fundamentals still support growth.

Inflation is heading lower toward the 2% goal.⁵

Economic growth may be cooling but is still expected to be strong this year.⁶

It’s always tempting to tactically sell and wait out rocky markets.

This approach comes with an abundance of issues, one of which it leaves you on the sidelines when markets move up again.

The chart below shows significant market drops since 2000.

You can see that corrections happen pretty regularly. Even in positive years.

I wish we could predict when markets would drop and when they’d pick back up again.

But no one can.

We build strategies based on our clients’ goals and harness the market to put our portfolios to work.

We make careful adjustments and strategy shifts, only when needed.

But we don’t let short-term market moves throw us off course.

We’re monitoring and will keep you up to date throughout what’s likely to be a rocky fall.

Sources:

1. https://www.cnbc.com/2024/09/08/stock-market-today-live-updates.html

2. https://www.cnbc.com/2024/09/09/fed-jumbo-50-bps-rate-cut-should-not-raise-alarm-analyst-says.html

3. https://www.foxbusiness.com/economy/us-jobs-report-august-2024

4. https://www.spglobal.com/spdji/en/commentary/article/us-equities-market-attributes/

5. https://www.reuters.com/markets/rates-bonds/traders-see-fed-delivering-25-bps-cut-sept-100-bps-by-year-end-2024-08-30/

6. https://www.atlantafed.org/cqer/research/gdpnow

Chart sources:

https://fred.stlouisfed.org/series/CPIAUCNS#0, https://fred.stlouisfed.org/series/CPILFENS#0, https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/

Concerns or questions about how your investment portfolio will hold up in the current market environment? Contact Financial Synergies today.

We are a boutique, financial advisory and total wealth management firm with over 35 years helping clients navigate turbulent markets. To learn more about our approach to investment management please reach out to us. One of our seasoned advisors would be happy to help you build a custom financial plan to help ensure you accomplish your financial goals and objectives. Schedule a conversation with us today.

More relevant articles by Financial Synergies:

• The Magnificent 7 Market
• Most Stocks Are Bad Investments
• Stocks Suck in September

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