Last Friday, U.S. stocks ended their worst week in 18 months. How will that affect us, and is it even relevant?
On Friday alone, markets dropped 1.7 percent, closing out a one-week loss of more than 4 percent. Large tech stocks were hit particularly hard. The NASDAQ fell almost 6 percent, which underscores the fragility of a market heavily dependent on just a few tech giants. Since 2022, non-AI tech firms have underperformed quite badly. One factor from last week was a lackluster jobs report—not terrible, but below expectations. Markets tend to react to surprises like that.
On the positive side, the yield curve is no longer inverted, and the Fed has managed to execute a remarkable soft landing, which has eased fears of a looming recession.
Today, Monday, we’ve seen a bit of a market rebound. So, as investors, what should we be doing with this information? First, we’ve been managing bond duration to minimize risk sensitivity. If interest rates do fall, we could see a small capital bump. The Fed is expected to lower interest rates, either by a quarter or half a percentage point, at their next meeting later this month.
Significant market moves, like those we saw last week, suggest that pricing errors may exist. This could present an opportunity for rebalancing your portfolio, even off-schedule, if these moves continue.
Lastly, diversification is key to managing downside risk in times like this. Everyone is concerned about missing out on gains as tech stocks have surged, but right now, we should focus on managing the risks that come with that inflated market environment.
If you have any questions about what we’ve discussed, please feel free to reach out. Wishing you the best of investing success.
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