The S&P 500 fell Friday and posted its second straight weekly loss, with tech stocks particularly feeling the heat as inflation concerns linger ahead of next week’s Federal Reserve policy meeting. The Consumer Price Index (CPI) report for February 2024 released on Tuesday this week came in at 3.2%, slightly higher inflation than expected. For the week, the S&P slipped 0.1%, the Dow Jones lost less than 0.1%, and the Nasdaq fell 0.7%.
The S&P 500 has reached record highs 17 times this year, with artificial intelligence darling Nvidia soaring more than 80%. And Bitcoin hit an all-time high for the fourth time in six days this week, bolstered by massive inflows into US exchange-traded funds tied to the cryptocurrency. The fear mongering has begun with calls of a bubble, given the record setting surge by the technology sector’s Magnificent Seven stocks and the all-time highs in cryptocurrencies.
Wall Street just can’t wait. As closely watched as the US Federal Reserve is in normal times, these less than normal times have placed every central bank utterance (or omission) under an even brighter light. On the fourth anniversary of the formal declaration of a pandemic, investors are predicting the end of high interest rates that crushed the inflation which followed. With the US economy in soft landing mode, Federal Reserve Chair Jerome Powell and his colleagues are moving closer to cutting rates.
Will it happen in May or June 2024?
Future Wealth’s View
It’s a crucial week ahead for central banks. There’s speculation that the Bank of Japan will raise interest rates for the first time since 2007. In the US, the Fed is expected to hold steady until it’s clear that price surges are contained, as the glide path to a soft landing experiences some turbulence.
But, while the US economy has avoided a recession and unemployment has remained low, that doesn’t mean everything is humming along nicely. Americans are feeling increasingly pressured by the surge in the interest rate on their debt. Delinquency rates on credit card debt and auto loans are now at the highest in more than a decade. But most families are relatively well-positioned to service their debt, and wage gains mean workers are pulling in larger paychecks.
Should investors continue to remain invested, put money into the market or wait for a pullback? The answer is – it depends on your timeframe. Money market funds and CDs are giving 5% interest rates but with inflation at 3.2% and the tax on the interest of another 1%, those investments don’t look so attractive providing a net return of less than 1%. Bond yields remain attractive but suffer from the same flaw near term. Which brings us back to the stock market and the S&P 500 which has provided an average annual return of 11% since 1960.
There is a saying in Wall Street – Time in the market is more important than timing the market.