Stocks and bond yields fell Friday, capping a tumultuous week as concerns rose that turmoil rocking the banking sector will tip the global economy into a recession. Investors pulled back from positions in regional bank shares and the financial sector overall. Despite the down session, the S&P 500 settled 1.4% higher on the week and the Nasdaq Composite jumped 4.4%, as investors bet on tech names ahead of next week’s Federal Reserve policy meeting.
A week ago, a lot of economists were thinking the Fed was going to pick up the pace of rate hikes as disinflation trends were struggling given a robust core services inflation reading and tight labor market conditions. A banking crisis however is changing how policymakers are assessing the impact of the first eight rate hikes. How broader financial turmoil plays out leading to the FOMC decision could greatly influence how policymakers place their rate vote.
Future Wealth’s View
When the Federal Reserve jacks up interest rates, as it’s been doing for the past year, a downturn is always a risk. And while the central bank’s monetary policy is aimed at correcting inflation, February consumer prices came in at 6% still remaining high and sticky. We, at Future Wealth LLC, have stated in past reports that we believe that a recession is inevitable.
The rapid change in the interest rate and economic landscape suggests to us that the only safe sanctuaries will be in Treasuries, CDs and Munis over the near term. Even our go-to investment all year in 2022 – value and dividend stocks are beginning to underperform in 2023 as their dividend yields are no match for CDs and Treasuries yielding north of 5%. Time as come for all of us to learn the basics of bond investing as it is very possible that bonds could outperform equities over the next few years.
Next week, with the Fed meeting on March 22, will be interesting. No doubt about it.