Jordan Daugherty, Investment Analyst, presents our September video market update and shares what FSA is doing to respond.
Stock Market Update Transcript
Hello, I’m investment analyst Jordan Daugherty, and this is your September market update.
Stock markets gave us a break check this last month. With the market’s fade inexorably tied to big tech’s performance, we can see on this chart of the tech sector and the S& P 500 how stocks caught a bit of a summer cold bug through the first half of August and made an encouraging rebound through month’s end. The weakness was enough to trigger our safety net in certain positions, and we did trim back exposure to foreign markets as well as small caps. The headline stories that interest rates continue on their war path moving higher and higher despite investor expectations.
The Federal Reserve continues to raise rates in order to fight back inflation, and while inflation has come down from last year’s highs, it must drop even more to reach the Fed’s ultimate target of 2%. The last rate hike was announced July 26th. You can see here how the market responded. The July policy rate was increased a quarter of a percent to 5.5%. Rates have been moving up nearly all year, so one might be wondering the significance of 5.5%. Why would this level hurt stocks? One explanation is that investors were caught off guard. They expected a pause from the FONC. The next rate decision is on September 20th, and we will be watching closely. Fed funds futures are pricing in 7% as the probability that a hike will occur. Only 7%. This means the market is betting the Fed will pause on this round of deliberations, and there’s the potential that a lot of investors will be caught off guard. We will adapt as these events play out, and we’re also well positioned to maneuver through the uncertainty.
A quick observation on the upside of this trend in interest rates is, of course, money market yields. Most are now yielding over 5%, and this is very accommodative when we’re building cash for our safety nets and for the most conservative strategies centered on capital preservation. We will continue to increase stock and bond allocations as evidence of price trends of these assets improve. The investment team is always in search of promising pockets of the market and has recently added energy-related stocks to the appropriate strategies. Oil started rallying early in the summer, and the energy sector is benefiting from the new price expectations.
That’s it for this market update. Thank you for watching, and we’ll see you next time.
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