As of mid-afternoon on September 23, the S&P 500 is re-testing the lows it hit in June. This isn’t unprecedented as the stock market has a history of re-testing lows. I wrote in August that I expected a pullback, although not to this extent.
The culprit is the rapid change in interest rate policy by the Federal Reserve. It was understood that the Fed would raise rates this year, and that it would stop accumulating long-term bonds (quantitative easing). What was not understood was the Fed’s aggressiveness in rate-hiking, especially given its easy-money policies of the past decade.
I’d recommend keeping in mind that, as author and behavioral finance expert Morgan Housel wrote, “Volatility is a fee, not a fine.” He means that fees are the price we pay for something valuable, in this case, potentially good long-term returns in stocks. Fines, on the other hand, are punishment for doing something wrong. I have often written that if there were no volatility in stock prices, you’d likely get a return that looked more like bonds or CDs, which is much less than what stocks have returned, over the long-run.
I’ll have further comments in my October letter, but for now, let’s see if we can hold those June lows on the S&P. If we do, I think the market is setting up for a good year-end move higher. If we don’t hold, there is a likelihood of lower stock prices.
As always, these opinions are mine, and may or may not be the same as those of Raymond James. This is not a solicitation to invest, although we do invite you to review your portfolio with us to see if any changes should be made.
Past performance may not be indicative of future results. There is no assurance any of the trends mentioned will continue or forecasts will occur. Investing involves risk including the possible loss of capital. Asset allocation and diversification do not guarantee a profit nor protect against loss. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices generally rise.