Declines late in the week almost wiped out all of last week’s gains, but the market eked out a slight increase overall. The drop came as a result of great news in the job market. Employers added 263,000 workers to their payrolls in September, causing unemployment to drop from 3.7% to 3.5%.[1] Why would great news like that cause the market to drop?
The Federal Reserve Bank has a dual mandate, which is unique among central banks around the globe. They have to balance price stability, or inflation, as well as unemployment. Other central banks are only tasked with managing inflation. Right now, inflation doesn’t seem to be slowing down, and the federal government continues to add fuel to the fire with increased government spending. Employment is still strong, so the Fed has been sharply raising interest rates to slow down the economy.
The Fed is trying to balance inflation, which is getting worse, and unemployment, which is still getting better despite the interest rate increases. There were hopes earlier in the week that the Fed would slow down or even pause the interest rate increases. This recent news solidifies fears that the Fed will raise rates by ¾ of a percent in November and another ½ a percent in December.
But what does this mean for you? The first thing is to watch any debt you have with a variable interest rate. This usually applies to credit cards and some lines of credit. Pay them down or transfer them to fixed interest rate loans. Second, don’t panic. If you are still working, it’s sickening to watch your balances fall. Remember you haven’t lost any shares. And if you are contributing to your investment accounts, you are buying things on sale.
The average length of a bear market, meaning a drop of 20% of more, is just 289 days[2]. Which means that, on average, we would expect the market to turn in the next three to six months. There’s no guarantee; it’s just an average. In baseball terms, we’re due for a hit in our next at bat.
Your action item this week is to get your shots. If you haven’t already gotten your flu shots and Covid booster, do it now. Being sick can derail a lot of financial plans. In fact, while you’re at it, check all your vaccinations. If you’re over 50 add the shingles vaccine and check when your last tetanus shot was.
We have some great educational events coming up, so be sure to follow us on Facebook and check out our website at covingtonalsina.com.
Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor.
All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investment(s) may be appropriate for you, contact the appropriate qualified professional prior to making a decision.
[1] Wall Street Journal, Fed on Track for Another Large Interest-Rate Hike by Nick Timiraos 10/7/22
[2] https://www.forbes.com/sites/qai/2022/08/24/the-average-bear-market-lasts-289-days-how-long-do-we-have-left/?sh=5d16800e5d5d