Markets and Economy
Above the Noise: Can the Fed stick the (soft) landing?
Can the Federal Reserve return policy to a more accommodative stance without the US economy falling into recession? And what should we expect from US stocks going forward?
Since the early 1980s, there has been a greater than 5% drawdown in the S&P 500 Index in every year but two.
Fortunately, many of the “early warning signals” that we track do not appear to be suggesting that a recession is imminent.
The average time to recovery is three months from a 5%-10% downturn and eight months from a 10%-20% correction.
Market corrections, while common, are always unsettling. Investment strategists lose sleep too. In the midst of this current global market sell-off, I spent the wee hours reminding myself of what I’ve absorbed over the years about market corrections and volatility. Here are some important reminders to keep in mind if the current sell-off is causing you to lose sleep as well.
Source: Bloomberg, as of 8/2/24, based on the S&P 500 Index.
Source: Bloomberg, as of 8/5/24, based on Fed Funds Implied Futures.
Source: Bloomberg, as of 8/5/24, based on the 10-year US Treasury rate.
Source: Bloomberg, as of 8/5/24.
Source: Bloomberg, as of 8/5/24, based on the Bloomberg US Corporate Bond Index option-adjusted spread.
Source: Bloomberg, as of 8/5/24, based on the Dow Jones Industrial Average Index drawdowns and market cycles since 1945.
Source: Bloomberg, as of 7/31/24, based on the S&P 500 Index and recession dates defined by the National Bureau of Economic Research: Aug. 1957 – Apr. 1958, Apr. 1960 – Feb. 1961, Dec. 1969 – Nov. 1970, Nov. 1973 – Mar. 1975, Jan. 1980 – Jul. 1980, Jul. 1981 – Nov. 1982, Jul. 1990 – Mar. 1991, Mar. 2001 – Nov. 2001, Dec. 2007 – Jun. 2009 and Feb. 2020 – Apr. 2020.
Sources: Bloomberg and Invesco, as of 8/5/24.
Source: Bloomberg, as of 7/31/24, based on S&P 500 Index returns since 1995. The analysis determines whether investors were better served by adding or withdrawing money following the 50 worst days in the market since 1995.
Sources: Dalbar, Bloomberg, as of 12/31/23. The study is based on a comparison of the return of the S&P 500 Index versus the average asset allocation investor return based on an analysis by DALBAR, Inc., which utilizes the net of aggregate mutual fund sales, redemptions, and exchanges each month as a measure of investor behavior.
Above the Noise: Can the Fed stick the (soft) landing?
Can the Federal Reserve return policy to a more accommodative stance without the US economy falling into recession? And what should we expect from US stocks going forward?
What interest rate cuts could mean for markets
The Federal Reserve cut interest rates. Learn what it may mean for markets and investments based on past easing cycles.
Above the Noise: Calm after the storm
Here’s what investors need to know in the aftermath of the early August global market sell-off and before the home stretch of a historic US presidential campaign.
Important information
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Image: Hiroshi Watanabe / Getty
Some references are US specific and may not apply to Canada.
All investing involves risk, including the risk of loss.
Past performance does not guarantee future results.
An investment cannot be made directly in an index.
This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.
In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic and political conditions.
The S&P 500 Index is a is a market-capitalization-weighted index of the 500 largest domestic US stocks.
The Bloomberg US Corporate Bond Index measures the investment grade, fixed-rate, taxable corporate bond market. It includes US dollar-denominated securities publicly issued by US and non-US industrial, utility, and financial issuers.
The Dow Jones Industrial Average is a price-weighted index of the 30 largest, most widely held stocks traded on the New York Stock Exchange.
Option-adjusted spread (OAS) is the yield spread that must be added to a benchmark yield curve to discount a security’s payments to match its market price, using a dynamic pricing model that accounts for embedded options.
The risk-free rate represents the interest an investor would expect from an absolutely risk-free investment over a specified period of time.
Fed funds futures are financial contracts that represent the market’s opinion of where the federal funds rate will be at a specified point in the future. The federal funds rate is the rate at which banks lend balances to each other overnight.
The opinions referenced above are those of the author as of August 5, 2024. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.
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