"A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.” - Winston Churchill
Last week's market recap:
- The S&P 500 closed the week down -2.91%. Year-to-date the index is up 13.88%
- NASDAQ closed the week down -3.61%. YTD the index is up 27.02%
- U.S. Aggregate Bond index was down -.50% for the week. YTD the index is up -.24%
- 10-Year Treasury Rate increased, ending the week at 4.44% up from 4.33% the prior week
- Fed Funds Target rate is currently 5.25-5.50%
- The 1-Year Treasury is yielding 5.46%
- A 6 Month Treasury is yielding 5.54%
The week ahead:
- PCE: The Fed’s preferred gauge of inflation
- Consumer Spending
- 2023 GDP (final estimates)
The Fed continues to hold rates at 5.25%-5.5% with the option of an additional rate hike on the table. The Fed is also projecting a reduced number of potential rate cuts in 2024. This implies interest rates are staying higher for longer than expected.
As we’ve been writing… The bond market and equity markets have been pricing in two completely different outcomes and it looks like they are both taking a step towards agreement. Stocks are down almost 6% since 7/31/23. Interest rates may stay higher for longer than previously expected. This step towards agreement is a sign of markets inching back to normal.
Market volatility may remain high in the short term. We have a potential government shutdown, UAW Strikes, student loan payments restarting, $90+ oil, higher interest rates, ugly overall sentiment. However, the terminal rate seems to be in sight. There are always additional concerns, but long-term investors can consider using volatility as an opportunity to adjust portfolios.
Eventually the 10-year Treasury yield should be higher than the Fed Funds Rate. To get there, we probably need BOTH the 10-year to go higher and the Fed Funds Rate to go lower. It may take longer than many expect.
As always, let us know if you have any questions.
CRA Investment Committee
Matt Reynolds CPA, CFP®
Tom Reynolds, CPA
Robert T. Martin, CFA, CFP®
Gordon Shearer Jr., CFP®
Jeff Hilliard, CFP®, CRPC®
Joe McCaffrey, CFP®
Phillip Tompkins, CFP®
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