Stocks posted their fourth straight daily loss Friday to end a rocky week that saw benchmark U.S. Treasury yields surging to 16-year highs and investors digesting hawkish revisions from the Federal Reserve. The central bank was the main event of the week. The Fed’s monetary policy committee on Wednesday chose to keep rates steady, as widely anticipated. However, the latest dot plot – a summary of economic and rate projections – signaled one more rate hike this year along with fewer rate cuts in 2024. Moreover, Powell said that a soft landing was not a baseline expectation, which further shook investor confidence.

For the week, the S&P tumbled 2.9% in its biggest loss since mid-March, when the collapse of Silicon Valley Bank sparked a sharp selloff, while the Dow Jones average slipped 1.9% and the Nasdaq Composite closed 3.6% lower.

Future Wealth’s View

The key comment at the Fed meeting was Powell’s statement that – “Forecasts are highly uncertain. Forecasting is very difficult. Forecasters are a humble lot with much to be humble about”. “In terms of inflation, you are seeing – the last three readings are very good readings. It’s only three readings. You know, we were well aware that we needed to see more than three readings.”

What the Fed is doing is hedging against inflation coming back up from current levels – it may or may not. While overall inflation could climb higher driven by energy prices, core inflation – the metric that really matters, is dropping and points toward further declines.

With the Fed controlling Wall Street and the stock market, it is important to make investment decisions taking into account Fed’s concerns. We, at Future Wealth LLC, believe that core inflation will continue to trend down which presents a buying opportunity for all investors. But, caution is warranted in not randomly buying stocks that are already trading at high multiples. This is the time when good stock picking separates the men from the boys.