Markets “In A Nutshell” for September 26, 2022

Markets “In a Nutshell” for September 26, 2022

Investment Week at a Glance

Stocks finished lower for the week.  The Dow Jones Industrial Average fell 4.00%, the S&P 500 was down 4.60%, and the NASDAQ fell 5.10%. Foreign stocks (MSCI EAFE) were also down, falling 5.60%.  Bond prices were down for the week, with the 10-year U.S. Treasury ending the week at 3.68%.  (Data source: Wall Street Journal)

Fed Raises Rates

The Federal Reserve had its most recent meeting last week, raising rates by 0.75% and giving an outlook for more hikes in the future. Although the market was expecting a 0.75% hike, there was still a sell-off last week and all sectors were hit hard once again. The market has now given up almost all the gains we saw over the summer, returning us to the early June lows we saw earlier this year. Interest rates rising due to inflation and the Fed raising rates is to blame for this downtown as we are seeing decade-high interest rates. Although high rates hurt that market, the rapid rise in rates is why the market is having this volatility. The 2-year treasury yield is now nearing 4.3% compared to the beginning of the year when we were under 1%. In the beginning of 2021, the 2-year yield was 0.16%, showing how rapidly we have moved higher in yields.

Looking Forward

Although rate hikes typically cause a downturn in the market and the economy, the time period after hikes are finished is typically positive. Historically speaking, the 12 months after the final rate hike, the market is up by an average of 14.7%. In the 24 months after the final rate hike, the market increases by 35.1% on average. While we have not seen the last rate hike yet, we should be on our way there by the middle of 2023. The Fed is currently expected to raise rates to 4%-4.5% and the current rate is 3%. This only leaves roughly 1%-1.5% more for the Fed to hike before we could see a pause in rate hikes. The other good news about the Fed raising rates is that this does give them the option to lower rates if the economy continues to deteriorate. This would give some relief to the economy as it would make money easier to access with lower rates for borrowing money.

Quiz:

Quiz

How long has the average bear market lasted since WWII? (Scroll Down for Answer)

1.     7 months
2.     11 months
3.     15 months
4.     19 months

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Answer below.

 

 

Have a Great Week!

 

 

 

 

 

 

 

 

 

Answer:

2)    11 months, the current bear market we are in has lasted 9 months so far. Although this does not mean we only have 2 months of downturn left, it does show the current bear is nearing the typical length of a downturn.