AE Wealth Management: Weekly Market Insights | 2/11/24 – 2/17/24

Weekly Market Commentary

THE WEEK IN REVIEW: February 11-17, 2024

Markets get a wakeup call

After finishing at new records over Super Bowl weekend, the markets got a rude awakening when the Consumer Price Index (CPI) number for January came out last Tuesday. The markets shrugged off Federal Reserve Chair Jerome Powell’s warning after the most recent Fed meeting that six rate cuts were a bit of an overreach. But when the latest CPI number showed inflation remains stubbornly sticky, markets finally realized that imminent rate cuts aren’t on the horizon. It also became apparent that the current interest rate environment may persist until we see inflation drop from its current level of 3% to the Fed’s target of 2%.

The news sparked fears that rates would remain higher for longer and possibly spur a recession — and the market rout was on. The Dow was down over 800 points on Tuesday before it bounced back somewhat as the day ended. Still, last Tuesday was the worst day in nearly a year for U.S. equity markets.

Then came some soothing comments from Chicago Fed President Austan Goolsbee on Wednesday, who said the Fed will stay on track to lower rates. He told the Council on Foreign Relations that inflation doesn’t necessarily need to be as low as it was during the last six months of 2023 for the Fed to have confidence it’s returning to the 2% goal. Instead, he said that even if inflation comes in a bit higher for a few months, “it would still be consistent with our path back to target.”

Goolsbee also noted that over the past seven months, the core Personal Consumption Expenditures (PCE) inflation gauge — which the Fed also closely tracks and strips out volatile food and energy prices — has been running at the Fed’s 2% target or even below. “Rate cuts should be tied to confidence in being on a path toward the target,” he said. “I think it’s worth acknowledging that if we stay this restrictive for too long, we will start having to worry about the employment side of the Fed’s mandate.”

On Thursday, retail sales declined much more than expected, and the talk again shifted to how soon we might see rate cuts. The S&P 500 bounced back, and we ended Thursday at a new record. But then the Producer Price Index (PPI) came in higher than forecasted on Friday, slapping markets around again as we closed out the week on a down note ahead of a three-day weekend for Wall Street.

It happens all the time: Fresh highs make markets squirrelly and hypersensitive to any news that either supports or refutes the narrative. This stokes volatility and things spiral from there. However, market sentiment is still very positive, and markets have a clear desire to move higher. It seems we’ve abandoned expectations for six rate cuts in 2024 and are now content with the three the Fed initially proposed starting mid-year. The good news is markets are in a positive mood and able to muscle through the waves of negativity for now. But as with all markets, the sentiment will shift, and we will have a correction sooner or later. We’ll talk about how we could handle that below, but it’s full steam ahead for now.

Market is at new highs — now what?

The market was at all-time highs last week, and some people are nervous. Questions are abundant: Is the Fed really going to cut rates? When? Will inflation come down? Will oil prices spike and supply chains be disrupted with additional international tensions? Will we have a recession? Who will be president, and what will that mean for markets?

After listing all that, it’s no wonder people are nervous. But we can’t control everything. Instead, we should focus on things we can control — like our emotions. If the markets drop 1% from a recent high, here are some things you can do to keep emotions in check:

• Stop obsessing over hourly and daily fluctuations. Market dips are normal. We had a mild sell-off at the end of January for a day after the Fed meeting and we had a one-day sell-off last week. And we generally have a couple bigger corrections every year.

• Keep an eye on the bigger picture. This is especially true if you have a longer time horizon. If you don’t need money for a while, why are you stressing?

• Review your goals. If you’re on track to meet your goals but still nervous when markets decline, perhaps it’s time to reconsider your risk tolerance. In the current rate environment, you have better choices for some measure of safety than you did in the past. You can get government bonds that pay 4% to 5% or an annuity with higher payouts. But if you want the potential to earn higher returns, you need to take on risk. Volatility is the price you pay for higher returns.

• Consider reverse dollar-cost averaging. Each time the market hits a new high, pull back some of your allocation into something more conservative. Just make sure you consider the tax implications of any such moves if you’re in a taxable account.

Coming this week

• Markets are closed on Monday in observance of the Presidents Day holiday.
• We’ll hear from several Fed officials this week. Plus, the Fed minutes from the January meeting will be released on Wednesday.
• Fourth-quarter 2023 earnings are slowing, but we will have a few more trickle in this week.
• Other data this week includes MBA mortgage applications on Wednesday and initial unemployment claims on Thursday.

Sources:
https://www.morningstar.com
https://www.cnbc.com
https://www.marketwatch.com
https://markets.businessinsider.com
https://ycharts.com

Accessed Feb. 16, 2024.

AE Wealth Management, LLC (“AEWM”) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IAR) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM.

Information regarding the RIA offering the investment advisory services can be found at https://brokercheck.finra.org/

Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information and opinions contained herein, provided by third parties, have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management.

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