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Good Buying Opportunity Alert

Good Buying Opportunity Alert

April 23, 2024

The stock market continued its downtrend last week and entered into a pullback cycle, with the S&P 500 almost 6% below its all-time highs. As if on cue, Fed Chair Jerome Powell, announced that interest rates will likely have to stay higher for longer.

I wrote about higher for longer interest rates in my last two market insights and the next step might be Fed discussions of another small rate hike. We’ll hear more about the Fed’s views next Wednesday as they wrap up their May meeting. The new stance that the Fed is taking should not deter a renewal of the market rally once this current market pullback cycle is complete. Delving deeper into 70 years of interest rate cycles and stock market movements has shown me that the stock market on average performs similarly whether interest rates are rising or falling. There does seem to be large differences in stock market performance when rates are changing quickly (underperformance) compared to when rates are steady to mildly changing (overperformance). This bodes well for the current environment since large rate changes are likely behind us and small changes, either up or down, are likely in the next 12 months.

Overall, now is a good buying opportunity with the S&P below 5000 and the potential to drop down to 4818 or slightly lower. The best way you can achieve higher returns is to contribute excess cash during these opportunities. If you are in a position to make a contribution, it’s optimal to do it now. I realize this isn’t always financially possible, and the next best thing you can do now is to create a plan to be in a position to contribute during the next pullback. The good news is that during bull markets, pullbacks often occur 1 to 3 times a year, while larger market corrections (10-20% drop) occur once every year or two. Investing during a pullback is always more favorable during the earlier stages of a bull market. This bull market is still pretty young at 18 months and will be entering the start of middle age in about 6 more months.

Photograph by: Dylan McLeod on Unsplash

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