Well, the time has finally arrived. This week, the Federal Reserve is set to cut interest rates in an attempt to start normalizing rate policy. Don’t trivialize the incredible policy adjustments that we’ve lived through for the past 2.5 years. Starting way back in March of 2022, the Fed began the process of raising rates from 0% , ending with its final rate increase in July of 2023 to 5.25%. Of course, this historic increase was in response to rapidly increasing inflation which peaked at 9.1% in June of 2022. And, while the battle isn’t officially over, it is time to start normalizing rates as inflation has cooled toward the Feds target of 2%. The combination of “restrictive rate policy” and a normalization of the supply chains across the globe has pulled the economy back from the brink of a potentially disastrous bout of stagflation. And, while challenges will ALWAYS remain for the largest economy in the world. The Fed seems to have pulled off an inside straight (that’s a poker term btw) and orchestrated the elusive soft-landing.
That being said, don’t confuse a stable economy with a strong outlook for the stock market. Frankly, the market has been telling us for the last 12 months that this was the most likely outcome. And, while we continue to expect asset prices (stocks/bonds) to be higher in 12 months, be aware that we are just beginning the worst 4 week stretch historically in the US stock market. Furthermore, the weakness tends to extend into early November in election years. There is no doubt about it. Markets have been surprisingly strong in the last 12-18 months. We should all be pleased as a result. But, don’t get complacent here. We continue to expect the unexpected between now and the election. We aren’t fortune tellers of course, but historically this stretch of the year has been ripe for surprises. We’d expect nothing different this year.
That being said, long-term investors should ignore any noise/volatility in the coming weeks. Stick to the long-term plan. We know it is the best chance of success. Until next time, enjoy this great time of year and we hope your favorite football team continues to win (especially if UGA is your favorite football team).
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