Stocks plunged Friday after the latest government data showed a hot U.S. labor market that likely ends any doubt that the Federal Reserve will maintain its aggressive policy of raising interest rates by 75 basis points later this month. Nonfarm payrolls increased 263,000 in September after a 315,000 gain in August, and the unemployment rate unexpectedly dropped to 3.5%, matching a 50-year low. The unemployment data dashed any hopes Wall Street had that the US Federal Reserve would pivot from its aggressive effort to tame inflation. It did however present more good news for Americans looking for work. But the consumer spending and wage growth that comes with it likely means another 75 basis point rate hike is in store for November, a reality that has some investors worried again about a recession.
Market depth, as the measure is known, last week hit the worst level since the pandemic crash of 2020, when the Federal Reserve was forced into a massive intervention. The question is “Are we close to hitting bottom”?
Future Wealth’s View
The answer to the question is – there is blood in the streets but now is not the time to chicken out. However, if you have not cut your losses and moved to safer havens after all the destruction in your portfolio, then you are going to have to suffer some more. The only worse thing to losing money in your portfolio is admitting that you are a loser. And so, most investors avoid selling and pretend that it will work out later or avoid looking at other options that could have improved their portfolio performance. CPI (consumer price index) to be released this week is almost surely going to inflict more pain in equities. Thinking logically, doing thorough research, making judicious choices and not being emotional about investments are going to be key for the rest of the year.
As an aside, 80 years ago, almost to the day, a young kid named Walter Rosenburg was sent to Auschwitz by the Nazis for being a Jew. He was the first one to escape Auschwitz a few years later and share the story of the horrors of the gas chambers and the genocide with the US and the allies, who were simply in disbelief. His story is documented in the book titled “The Escape Artist” by Jonathan Freedland. I guarantee, upon reading the book, that your stock portfolio, as bad as it may be, will be the last thing on your mind.