Hello From EWM,

Clouds may be gathering. Should investors be worried about a storm?

Let’s look at some factors that could trigger a market selloff in the weeks or months ahead.

(Note: We’re not saying a selloff is definitely going to happen — we want you to be prepared if it does.)

Factor #1: Stocks are trading near record highs

Stocks have posted multiple record closes, and the S&P has been trading well above its 200-day moving average.^1,2

When stocks repeatedly push new highs, it’s not uncommon to see a pullback as traders take profits.

Factor #2: Investors are watching the Fed like hawks

The 2024 rally is largely driven by the expectation of lower interest rates.
 
The Fed voted to keep rates steady at its most recent meeting, which wasn't a surprise since the latest data didn't show enough improvement in inflation.3
 
At this point, the market is pricing in the expectation of a fall rate cut.4
 
However, if the Fed indicates that it will delay rate cuts into 2025, markets may drop as investors revise their expectations.
 
Given that the European Central Bank and Bank of Canada recently voted to cut interest rates, it doesn’t seem likely that the Fed will be far behind.5,6
 
Factor #3: A “trigger event” could cause a selloff
 
Sometimes, even when overall conditions look good, a single event causes investor psychology to flip and markets to drop.
 
We can’t predict these events, but we can accept that they show up occasionally and build flexibility into our investing approach.
 
The chart below shows market drops in the S&P 500 since 2000. 
 
You can see that markets have fallen at least 10% in the vast majority of years.
 


However, most of those years still ended in the green.
 
The big takeaway? Market drops are normal. They happen frequently.
 
Should you sit on the sidelines to wait out the uncertainty?
 
There’s an old investing adage that may have made sense once: “Sell in May and go away.”
 
The idea is that an investor ought to sit the summer out and buy back in later in the year. 
 
That folksy advice might have made sense back in a more industrial economy when American factories would shut down during the summer to retool and give employees time off.
 
Today, that kind of advice simply doesn’t match our complex world.
 
Markets move quickly, and sitting on the sidelines often means missing out on the recovery.
 
The overall case for the economy and stocks remains bullish. We’d like you to relax and enjoy the beginning of summer with your family and friends.
 
We’re watching closely so you don’t have to and will reach out as needed.
 
Warmly,
 
Your Eagle Wealth Team

The Week on Wall Street

Stocks notched a solid gain last week, driven by the Fed’s decision, May's inflation report, and Apple’s AI-related news.

The Standard & Poor’s 500 Index rose 1.58 percent, while the Nasdaq Composite picked up 3.24 percent. The Dow Jones Industrial Average, which has lagged most of the year, slid 0.54 percent. The MSCI EAFE Index, which tracks developed overseas stock markets, fell 1.44 percent for the week through Thursday’s close.⁷

S&P 500, Nasdaq Lead; Dow Lags

Market leadership took a familiar form. The tech-heavy Nasdaq led while the Dow trailed for the second week (and four out of the past six weeks).⁸

Stocks trended higher at the start of the week as investors cheered an artificial intelligence update from Apple.^9,10

By midweek, the market had split, with the Nasdaq and S&P 500 moving higher while the Dow lagged. Investors were upbeat after learning that consumer prices rose less than expected in May and that the Fed decided to keep rates steady. However, some investors were unsettled after learning Fed officials had shifted their outlook and now only penciled in a single rate cut between now and year-end. A few months ago, the Fed had indicated as many as three cuts were possible.¹¹

Busy Week For News 

Last week was chock full of market-moving events. Between Apple’s AI update, inflation, and the Fed, it was a toss-up which one influenced sentiment the most.

AI’s outsized role in driving market momentum continued last week. OpenAI’s deal with Apple arrived at the start of last week, and the news followed OpenAI’s deal earlier this year with Microsoft. (These companies are mentioned for illustrative purposes only; it is not a recommendation to buy, sell, or hold this or any security.)¹²

Wednesday morning, the Consumer Price Index (CPI) was announced. A few hours later, the Federal Open Market Committee updated its monetary policy. Those pieces of news have only arrived together 13 times since 2008.

The FOMC kept rates steady at the current 5.25-5.50 percent target range, a widely expected decision. However, the tame CPI report caused some volatility as investors grappled with how the report may influence Fed policy.^13,14

Any companies mentioned are for informational purposes only, and this should not be considered a solicitation for the purchase or sale of their securities. Any investment should be consistent with your objectives, time frame, and risk tolerance. Source: YCharts.com, June 15, 2024. Weekly performance is measured from Monday, June 10, to Friday, June 14. TR = total return for the index, which includes any dividends as well as any other cash distributions during the period. Treasury note yield is expressed in basis points.