The stock market continues its two-week slide with the S&P 500 touching 4,017 and the Nasdaq at 12,018 as of Monday’s close. Fed Chairman Powell’s speech at the Jackson Hole symposium drove stocks to these levels with his aggressive stance on fighting inflation even if it means a recession.
In Powell’s speech on Friday, he alluded to a coming recession and higher interest rates for longer. It seemed to me like he wanted to take the steam out of the summer stock rally, which he did. What I find most interesting is how often the Fed is wrong in its forecasts, now and throughout its history, and yet investors put so much weight on their every word. This is the same Fed Chairman after all that had it completely wrong on inflation just a year ago. It’s extremely difficult to predict the future and this is equally true for the Federal Reserve. Although it’s important to listen to the Fed, it’s even more important to listen to the stock market.
Last week we discussed how buying into the market if the S&P 500 hits 4000 is a good opportunity. It seems much has changed in the market since last week with an increase in negative investor sentiment, a very large drop on Friday, and predictions of a coming recession. These negative headlines and feelings are typical concerns one hears when the market is down, and also when it’s a good time to buy. I believe these current concerns are minor, and more familiar, compared to the concerns investors were facing in June. The market may still go lower from here but buying at these price levels, and incrementally buying if lower prices occur, still offers an investor a high probability of long-term success.
Did you miss last week’s Market Insight? Read it here.
Photograph by: Markus Spiske on Unsplash
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