In Markets "In a Nutshell"

Markets “In a Nutshell” for August 26, 2024

Investment Week at a Glance

Stocks finished higher for the week. The Dow Jones Industrial Average rose 1.30%, the S&P 500 was up 1.40%, and the NASDAQ rose 1.40%. Foreign stocks (MSCI EAFE) were also up, rising 1.70%. Bond prices were up for the week, with the 10-year U.S. Treasury ending the week at 3.80%.  (Data source: Wall Street Journal)

Jackson Hole Recap

The annual Jackson Hold symposium was held last week and the market paid close attention as Fed Chair Powell gave his speech. Although no policy is determined at this meeting, it does give the Fed a chance to say what they are seeing in the economy. The statements made by Powell indicated that we would see the first rate cut happen in September. The market is all but guaranteeing a rate cut, the only question is how much. Currently priced in is a 76% chance at a 0.25% rate cut and a 24% chance at a 0.50% rate cut. Inflation has come down, but it is still not at the 2% target of the Fed, but the Fed also has a mandate of full employment. The recent unemployment numbers have pushed the Fed into cutting rates before unemployment gets too high and sends the economy into a recession. The market will continue to price in new data and hope the Fed is able to complete its “soft landing”.

Rate Cuts and Historical Market Performance

Since 1984 there have been 8 rate cutting cycles, 6 of the 8 have seen the market positive in the following 12 and 24 months. The average 12-month return has been nearly 7% and if we look at the 6 times the market was up, the average return was 14.5% in those instances. In the following 24 months, the average return was 27.3% and if we look at the 6 times the market was up, the average was 45.9%. This would suggest rate cut cycles tend to be good for markets and when it is positive, the returns are very high in the following 24 months. The two negative periods were in 2001 and 2007, both of which had major crises with the dot-com bust and 9/11 in 2001, and the global financial crisis in 2007. Historically speaking, if we can avoid any major recession or shock to the economy, the returns may be excellent in the next couple of years.

Quiz:

What year was the Federal Reserve created? (Scroll Down for Answer)

  1.     1874
  2.     1913
  3.     1945
  4.     1975

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Answer below.

 

 

Have a Great Week!

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Answer:

2.  1913.  In 1913, President Woodrow Wilson signed the Federal Reserve Act into law. The Senate passed the bill 43 to 25 along party lines. This was the most lasting legislative accomplishment of the Wilson administration.