PUT IN WORK (9/25/2023)

The stock market had one of its roughest performances of the year last week, with stocks across all indices dropping substantially in response to the most recent Fed meeting, which took place on Tuesday and Wednesday. The S&P 500 (SPY) fell 3%, while the Nasdaq (QQQ) fell 3.5%. You might wonder why that's the case, seeing as there was no rate hike. Investors’ expectations were met when the Fed announced that they would pause this month, but stocks still dived the rest of the week—why might this be?

Despite leaving rates unchanged for the month, they signaled that there will be one more rate hike by the end of the year. This, naturally, upset investors and caused the market to fall. They obviously knew this would be the result, of course. As we’ve discussed in previous issues, the Fed likes to use language to regulate the movement of the stock market, and that’s precisely what they’ve just done here. But there’s still good news…

The Fed is likely nearing the end of this rate-hike cycle, which means they’ll eventually begin cutting. Inflation has been slashed dramatically, from over 9% approximately a year ago to 3.7% now, a good sign of progress, to be sure. Once we receive the final rate hike and move on with cuts, the market is more than likely to produce significant returns in the short and long term, and there’s data to prove it.

(S&P 500 returns 3, 6, and 12 months after final rate hike—information courtesy of MAPsignals, TradeSmith, and FactSet.)

Here, we can see that, on average, the stock market produces 8.7% returns three months post final hike, 13.7% over six months, and a whopping 20.3% over twelve months. Essentially, it indicates that investors become confident and willing to make some big purchases after the rate hike cycle is completed. When this final rate hike will be exactly is unknown, but again, it’s safe to say we’re nearing the end—the Fed doesn’t want to kill the economy, of course. Regardless of when, our long-term prospects seem quite secure, and we’re confident of our holdings and the opportunities that will arise in the near future. The Fed will continue using hawkish rhetoric until then, more likely than not, and the market will continue to be a bit of an uncertain and somewhat volatile place. We look forward to the future of the market.

(Nasdaq ETF (QQQ) price from September 2022 - September 2023 — each candle is 1 week. Chart provided by tradingview.com.)

PORTFOLIO UPDATE

Being fairly aggressive, our portfolio fell harder than the market last week. Just about all of our stocks fell alongside the market, which was to be expected from that kind of movement across all indices. Of course, we aren’t looking to sell anything from our site portfolio. We plan to hold all currently owned assets into the future. As always, thank you for reading, and happy investing.