FED FAILED, But We’re Okay
In a CNBC interview today, Chicago Federal Reserve President Austan Goolsbee said, “The Fed’s job is very straightforward: maximize employment, stabilize prices, and maintain financial stability.”
Too bad they missed all three of those marks recently. Everyone knew the rate cut was coming, and by everyone, I mean the entire planet. Everyone was waiting for it. First Europe, and, just last week, Japan got sick of waiting.
Mr. Goolsbee also said about the low hiring in July, “The Fed’s job is not to react backward-looking to one month’s numbers…You can see that it’s the market’s job to react, and it’s the Fed’s job to act. And one of those moves with a lot more volatility than the other.”
His language implies the market, investors, you and me are impetuous, and the Fed are the reasonable, cautious ones. I’d have side with the market on this one. The Fed created the volatility by failing to act when they knew they should have: When the World expected it! Not like a baby impatiently waiting for its bottle, but after years of high interest rates and clear signs inflation was down, the Fed should have acted to lower interest rates for a soft landing in March.
Now, the Fed must make a large rate cut at an “emergency meeting.” Who’s the reactionary party? Who’s being volatile? Who cares?!
I only have one question for too many issues: Are we okay?
Investment wise, we’re okay. Look back four or five months, even better a year. The market started today where it was in March. What was anticipated in March? Oh yeah, a rate cut by the Fed. The cut didn’t happen, and markets dropped. Then the Fed kept hyping September. Everyone jumped on.
This last week, the market spoke. Now everyone is frustrated. And some are mad.
The good news is the market has recovered most of its losses as I’ve written this article, and the trading day is young. Maybe it’ll dive even further or rocket back to where it was a week ago. The important thing is to remember that the market is mostly moving upward at an impressive rate.
Hang in there, stay diversified, and don’t do anything reactionary.
What a Finish, Folks!
What a week! On Sunday, a friend texted me wondering what he should do with his investments considering the dive this last month has taken. Imagine if he pulled a bunch of investments on Monday only to miss the 4.23% gains of the NASDAQ, 2.67% gains of the S&P 500, and 2.79% gains of the Russell 2000.
He would have lost a lot of capital and be drowning his tears in cheap tequila as I write. Sure, the markets are still down about 3% overall for the last month, but they’re still significantly up from the beginning of the year.
Story made simple: Don’t worry about the short-term!
Your blood pressure will go up, and you won’t enjoy the weekend. Watch the Champions League Semi-Finals or read a book, and let your investments ride. If the volatility of your portfolio is making you nauseous, maybe more low risk investments, such as an intermediate-term corporate bond fund, will help settle your stomach.
Don’t Forget to Diversify!
Hard to swallow a 3% drop in the S&P 500 and a 5.5% drop in the NASDAQ this week. The Dow held steady, some Russell 2000 tracking funds actually did well, and I guess it’s a good idea to hold bonds too.
I know many folks out there love the “VTSAX and relax” philosophy. It’s a good, simple option, but I just can’t sit with that. Yes, it’s already diversified and there’s no point in trying to beat the market.
Who said I was trying to beat the market? (By the way, don’t try to beat the market.) I’m trying to find that piece of the pie that makes sense to me and the future. There are many funds focused on water & other resources, future tech industrial and health discoveries, future energy solutions, etc. Some are ESG funds. Some are not.
Try not to focus on labels or fancy terms. Focus on what makes sense to you. Overall, I like funds because the busy work of picking stocks is done, and they are diversified within their economic sectors with anywhere from 25 to 200 stocks in the fund. You might need two or three different funds to make sure you’ll have the broader diversity you need.
Sometimes individual companies are good to track over time, such as VEIR for example. They’re researching new powerline technology that integrates superconductors to improve line capacity 5 to 10 times! It may not be this company that launches the tech, but simply knowing it’s coming puts you ahead of others who only invest in one, broad fund.