The Markets
The Federal Reserve (Fed) is the central bank of the United States. A longstanding bit of investment wisdom is: Don’t fight the Fed. It means that investors should align their strategies with the Fed’s monetary policy. Economic growth is influenced by Fed policy, and stock markets tend to reflect the economy, rising when it grows and falling when it contracts. As a result, Kent Thune of The Balance reported, when the Fed is:
- Tightening monetary policy by raising the federal funds rate to slow economic growth, investors should be cautious.
- Easing monetary policy by lowering the federal funds rate to stimulate economic growth, investors can be more aggressive (within the boundaries of their risk tolerance and financial goals).
The Fed has left rates unchanged since last summer. In January, the Fed indicated that inflation was moving in the right direction, and the economy remained strong. It projected that the federal funds rate would fall to 4.6 percent by year-end, implying three rate cuts of 0.25 percent in 2024.
The market did its own math and came to a different conclusion. It decided inflation would drop steadily, economic growth would falter, and the Fed would cut rates six times in 2024, reported Nicholas Jasinski of Barron’s.
Last week, economic data suggested the Fed has yet to win its fight against inflation, although there was a sign that economic growth might be moderating.
- The Consumer Price Index showed that inflation fell in January, year-over-year, but not as quickly as many economists had expected.
- The Producer Price Index revealed U.S. producer prices rose more than expected in January as the cost of services moved higher.
- Retail sales slowed dropped more than expected in January, suggesting that consumer spending (a primary driver of U.S. economic growth) might be slowing.
The data caused markets to recalculate. Now, investors “have moved closer to the view of Fed policymakers, most of whom as of December penciled in 50 to 75 basis points of rate cuts by the end of 2024,” reported Howard Schneider and Michael S. Derby of Reuters.
As markets adjusted to the revised outlook, major U.S. stock indices finished lower, and yields on longer maturities of U.S. Treasuries moved higher.
| Data as of 2/16/24 | 1-Week | Y-T-D | 1-Year | 3-Year | 5-Year | 10-Year |
|---|---|---|---|---|---|---|
| Standard & Poor's 500 Index | -0.4% | 5.0% | 22.4% | 8.4% | 12.5% | 10.5% |
| Dow Jones Global ex-U.S. Index | 1.5 | 0.3 | 5.7 | -3.3 | 3.0 | 1.7 |
| 10-year Treasury Note (yield only) | 4.2 | N/A | 3.8 | 1.3 | 2.7 | 2.7 |
| Gold (per ounce) | -1.3 | -3.9 | 9.2 | 3.7 | 8.6 | 4.2 |
| Bloomberg Commodity Index | -0.7 | -2.4 | -10.4 | 4.2 | 3.4 | -3.0 |
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, MarketWatch, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
When Was the Last Time You Paid With Cash?
Paper money and coins may follow the telephone landline and the film camera into obscurity. About 60 percent of people who participated in a 2022 Gallup poll said they almost never use cash, and just 13 percent said they always paid in cash. No matter where you fall on the spectrum, see what you know about currency by taking this brief quiz:
- What do most people do with coins they receive as change?
- Drop them into coin jars at home.
- Spend them on laundry and parking.
- Deposit them at the bank.
- Leave them in “take a penny, leave a penny” trays.
- How much money did airline passengers leave behind at screening checkpoints in 2022?
- $236,000
- $523,000
- $835,000
- $1,467,000
- What is the oldest currency still in use today?
- Russian ruble
- British pound
- Haitian gourde
- Japanese yen
- The original American penny, known as the Fugio cent, was designed by Ben Franklin. On one side, it had the motto: We are one. What was written on the other side of the penny?
- When In Doubt, Don’t
- A Penny Earned
- Mind Your Business
- Industry And Frugality
Answers: 1) a; 2) c; 3) b; 4) c
Weekly Focus – Think About It
“We do not receive wisdom, we must discover it for ourselves, after a journey through the wilderness which no one else can make for us, which no one can spare us, for our wisdom is the point of view from which we come at last to regard the world.”
—Marcel Proust, Novelist
Wishing you and your families well,
Sean M. Dowling, CFP, EA
President, The Dowling Group Wealth Management
Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.
- Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
- Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
- The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
- All indexes referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
- The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
- The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
- Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
- The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
- The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
- International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
- Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
- Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
- Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
- Past performance does not guarantee future results. Investing involves risk, including loss of principal.
- You cannot invest directly in an index.
- Stock investing involves risk including loss of principal.
- The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Economic forecasts set forth may not develop as predicted and are subject to change. Investing involves risk including loss of principal.
- The Price-to-Earning (P/E) ratio is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share. It is a financial ratio used for valuation: a higher P/E ratio means investors are paying more for each unit of net income, thus, the stock is more expensive compared to one with a lower P/E ratio.
- These views are those of Carson Group Coaching, and not the presenting Representative or the Representative’s Broker/Dealer, and should not be construed as investment advice.
- This newsletter was prepared by Carson Group Coaching. Carson Group Coaching is not affiliated with the named broker/dealer.
- The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
- Consult your financial professional before making any investment decision.
Sources:
https://www.thebalancemoney.com/what-is-the-meaning-of-dont-fight-the-fed-2466886#
https://www.federalreserve.gov/monetarypolicy/files/monetary20240131a1.pdf
https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20231213.pdf
https://www.barrons.com/livecoverage/fed-december-meeting-speech-rate-decision-today/card/futures-markets-expect-6-rate-cuts-in-2024-versus-4-earlier-0GuZFQP7CW6pR1VEmOdr (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/02-19-24_Barrons_Futures%20Markets%20Expect%206%20Rates%20Cuts%20in%202024_5.pdf)
https://www.marketwatch.com/story/producer-price-index-rises-0-3-in-january-core-ppi-up-0-6-69e79209
https://www.cnbc.com/2024/02/15/retail-sales-january-2024-.html
https://www.barrons.com/market-data (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/02-19-24_Barrons_Data_10.pdf)
https://news.gallup.com/poll/397718/americans-using-cash-less-often-foresee-cashless-society.aspx
https://www.goodreads.com/author/quotes/233619.Marcel_Proust#
https://www.dhs.gov/sites/default/files/2023-07/23_0501_FY22_TSA_Unclaimed_Money_at_Airports.pdf
https://www.oldest.org/culture/oldest-currencies-still-used-around-the-world/
https://www.history.com/news/10-things-you-didnt-know-about-the-penny#
ADV & Investment Objectives: Please contact The Dowling Group if there are any changes in your financial situation or investment objectives, or if you wish to impose, add or modify any reasonable restrictions to the management of your account. Our current disclosure statement is set forth on Part II of Form ADV and is available for your review upon request.
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