After a big week, is the market really a bull, or a bunch of bull?
By Last week was a big one in the market. We had a new bull market declared, and we saw the Federal Reserve finally pause its year-plus campaign of hiking interest rates. Let’s deal with the Fed first:
No rate hike, but are more coming?
While it did not raise rates, the Fed did raise its terminal interest rate, which is its target for where it sees interest rates going, by 50 base points, or a half percent.
The market was initially shocked and sold off but quickly recovered, which leads me to believe that the equity markets don’t actually believe that the Federal Reserve is going to make those additional rate hikes later this year.
The market’s perception seems to be that the Fedmobile is trying to move forward while its drivers are looking in the rearview mirror. So it’s what the Fed says it will do versus what’s going on in the real world. CPI reports show core inflation is slowing, and our production and manufacturing (PMI) numbers are slowing. It suggests that while corporate America is doing quite well, the overall economy is cooling as intended.
Will the market go even higher?
That begs the question, are we really in a new bull market? A bull market is defined by the market rallying 20% from its lows, which we’ve seen since October. As we said earlier this year, those assets were effectively on sale. If you sat on the sidelines waiting for a bull market to strike, you missed out on some remarkable gains.
Now that we’re eight months away and the market is 20% higher, it wouldn’t surprise me that the white flag gets waved and the bull market takes a breather. The market tends to rally on a wall of worry, and as those worries go away, I can see the market idling mindlessly for some time. After all, as Wall Street joins Main Street on their summer vacations there may be fewer people (and subsequently machines) who are buying and selling. The indices may just sit there until everyone in New York gets back from the Hamptons and everyone in Kentucky gets back from Myrtle Beach or the Panhandle.
We’ve had incredible recoveries in our portfolios and in many cases have significantly beaten the market. Just as gardeners prune their plants, our strategy now is to prune our portfolios accordingly, and we have positioned ourselves more defensively due to these historic runs in the equity market since the October bottom.
What should you do now?
We’ve been talking to a lot of you about what you should do now that portfolios have recovered from 2022. The three main questions I’ve been getting are: 1) Can I retire a little earlier? 2) Can I take a little more income? 3) What should I do with the extra cash savings I have?
If you’re 3-5 years from retirement, my advice is to dip your toes into the market slowly. It likely needs a breather for a while. Allow us to carefully add your hard-earned funds where opportunities exist.
If you’re retired and are interested in giving yourself a pay raise, think about your goals. If you need that extra money to pay the bills each month, I understand. But if you’re hoping to save up for Christmas gifts or a down payment on a vehicle, read on.
If you’re looking to invest some extra cash savings that you stored away during the market downturn, my thought would be to check out treasuries. Depending on your specific situation and if appropriate, it may be that a 3-month treasury yielding 5.21%* might be perfect for some of the cash that you won’t need until the fall. Or you could consider a 6-month treasury note that is yielding 5.33%* and would mature in time for you to have the funds by Christmas and allow you to earn a little extra income.
I don’t want you to think that we’re bearish on the current market. It’s just that, a few months back when the general public was piling into 5% treasury notes at a historically high clip, we suggested it may not be the best time to buy them.
Regardless of whether you’re reassessing your retirement, need more retirement income, or you’re looking to figure out how to use that extra cash, our team is more than happy to help you. Reach out to me or someone on our team today and let us take a look at the best strategies for you.
*Treasury yields as of the time of this writing
This information is for educational purposes only and is not meant as investment advice or a recommendation to engage in any investment nor financial strategy. Investment and financial decisions should always be made based on your specific financial needs, objectives, goals, time horizon, and risk tolerance. Past performance is no guarantee of future results.
Article by David Smyth, CLTC, Senior Partner at Family Financial Partners — a financial services firm in Lexington, Kentucky.