Broker Check
Potential Market Pullback and Buying Opportunity

Potential Market Pullback and Buying Opportunity

April 16, 2024

The stock market has been down for two weeks in a row to start the second quarter. Market momentum can often shift at the start of a new quarter and that is what seems to be playing out currently.

For some time we’ve discussed the likelihood of a market pullback (5-10% drop) occurring this spring and there are plenty of reasons it should occur. The stock market has had a sustained rally since the end of October and rallies only carry so far before reversing and entering a short-term drop. During this time there has also been a continuous narrative from the Federal Reserve that the war on inflation is succeeding so well that rate cuts will soon occur. This has been the paradigm that investors generally have used to buy into this market, but I believe this market drop is a realization that the paradigm has shifted.

The Fed has been very slowly walking back their forecast of rate cuts in the face of a strong economy and moderate, but persistent inflation. I believe it’s possible they may need to raise rates, another time or two, by 0.25% and then stay at those higher rates for some time before making any cuts. Let’s remember that the Fed is notoriously inaccurate in their medium and long-term forecasts. As discussed last week, history shows us that the stock market can do just fine with higher interest rates so long as the economy is strong and unemployment is low. It’s also important that the changes in interest rates are small and are introduced at a slow pace. Of course, the stock market would sell off with this type of news, but it would likely be short lived and provide a great buying opportunity.

If the current market drop continues, the S&P 500 could very likely go down to 4818 (the previous all-time highs) and possibly down to 4600. I’ll keep you informed weekly, while in the meantime you should consider if you have extra savings sitting in a bank account that could be working harder for you in your retirement or personal investment account. Buying into a market pullback is one of the best ways to boost your overall portfolio’s performance. There are no guarantees with this strategy but the more often you invest additional funds at market pullbacks and lows, the better positioned you are to reap the benefits of market rallies and new highs.

Photograph by: Guillaume TECHER on Unsplash

.

.

.

.

.