Weekly Market Update February 10, 2023
Dow Jones Industrial 33,869.27 -0.17%, S&P 500 4096.46 -1.11%, Nasdaq Composite 11,718.12 -2.41%,
US Ten Year 3.745%, West Texas Intermediate $79.78
Another roller coaster ride in stocks this week as traders jumped in and out of equities on little more than some bland utterance from a Federal Reserve official. But the fact is, we have come a long way from the near zero interest rates of just under a year ago to today’s 4.50% to 4.75%. How much higher will rates go? According to the Chicago Mercantile Exchange’s “CME FedWatch Tool,” rates are expected to top out in July or September (see chart below) with the highest probabilities for rates to be between 5.00% and 5.50%. The futures markets are then predicting lower rates coming out of the November meeting. This anticipation of lower rates later in the year is what has fueled stocks’ recent strength. According to Forbes, the market itself is generally about six months forward-looking. With rates expected to peak between July and September, we are at that six-month period before rates start to come down.
What kind of returns can we look forward to under these projections? This March will mark twelve months after the central bank started raising rates on March 17 of last year. From the chart below using historical data going back to 1950, stock prices on average are 13% higher after the beginning of interest rate increase. That is the direction stocks have been moving over the first six weeks of 2023. Even more striking are stock levels 24 months after the first interest rate increase, up a whopping 22%. And it is this relationship between stock prices and changes in Fed Funds that illustrates why investors should always own stocks.
-Courtesy, Fidelity Investments
Recent legislation has made some significant changes to American’s retirement plans. This past December congress passed the Secure Act 2, which was a follow-up to the Secure Act 1 passed in December 2020. Among its major provisions was pushing back the age of mandatory Required Minimum Distributions from traditional IRAs to 73, which had previously been pushed pack to 72 from 70 1/2 by the 2020 Act. The new law also allows for Roth-style 401k accounts, removing mandatory withdrawals from such 401K retirement accounts. There are numerous other provisions that provide greater flexibility to those already retired, and for those planning retirement years into the future. Our colleague Marshall Burroughs, M&R Capital Management’s financial planner, is available to provide you with further information on how these changes may affect how you prepare for your financial future.
Have a Wonderful Weekend,
Paul