Broker Check

UFG Market Update

| March 28, 2024

At the end of 2023, the stock market was riding high based on the expectation that the Federal Reserve would lower interest rates multiple times this year, starting in March. 

In mid-December, the Fed surprised everyone by considering rate cuts, even though two weeks earlier, Jerome Powell said it was too soon to consider this.

At the March press conference, Powell hinted that the Fed might shift its priority to avoiding a recession at the expense of inflation staying higher for longer, pushing the S&P 500 to all-time highs.  Investors seem confident that the economy will remain strong, unemployment will stay low, and inflation will decrease.

However, whatever the Fed decides carries risks.  Not lowering rates could hurt the economy, while changing them too quickly could reignite inflation.

We’ve had two months of updates on employment and inflation.  Employment continues to surprise on the upside.  Inflation is lower than 12 months prior but has increased over the past three and six months.  Based on the data, you might think we don’t have the all-clear sign yet for the Fed to lower interest rates.  Yet, the stock market continues to hit record highs.

If you had known all of this or even guessed correctly, would you have expected the market to continue to rise this year?  From Goldman Sachs:

“If you were told in early January that three of the Magnificent Seven stocks would trade lower in Q1 ... that core inflation would surprise to the upside for two consecutive months ... and, in turn, the number of implied Fed cuts for 2024 would be halved...would you have guessed that US equities would do nothing but melt higher?”

 Making decisions for your portfolio based on future predictions is difficult.  You must predict the future and the stock market’s direction correctly.  Investors who piled into stocks late last year expecting interest rate cuts have, so far, been right for the wrong reasons.

I think interest rates still matter.  Bonds might be a good option if rates stay level or decrease in the next six to twelve months.  However, stocks could provide higher returns, even though more uncertainty is involved.

Everyone has their comfort level.  The good news is we can earn a decent return these days without taking on all that much risk.  Please reach out if you’d like to see where you stand or discuss making changes.

Best,

Brian