The Dow (-3.4%), NASDAQ (-0.3%) and S&P 500 (-1.9%) all dropped last week, with the Dow having its worst week since last October. Meanwhile, taxable bonds were mixed, ranging from down 0.2% to up 0.2%, and tax-free municipal bonds were down about 0.2%. For the second week in a row, the value stock index (also indicated by the Dow) lagged the growth index (also indicated by the NASDAQ) by a wide margin, as the value stocks fell 4.1% while growth stocks gained 0.5% over that two week period. This is a reversal of what we’ve seen the past couple months, so the Dow and NASDAQ returns are now more similar for the year at 9.8% and 9.2%, respectively.
All the hype last week was centered around the Fed’s meeting, which occurs roughly every 6 weeks. On Wednesday, the Fed announced that it may begin raising interest rates possibly twice by late 2023, compared to previous reports of not raising rates until 2024. This is honestly very puzzling to me. Interest rates shot up Monday through Wednesday, but then eased back down by the end of the week, finishing the week lower than it started. Further, I find it puzzling there’s so much hype about when the rates might rise in 2 – 3 years when we all know how much things can change in such a shorter period of time. As such, like many other headlines, I consider this to be lots of noise. That said, the Fed’s policy decisions are based to a great extent on inflation, so if inflation remains persistent, the Fed will likely have to take action long before the end of 2023. While the rule on Wall Street is “never fight the Fed”, it’s also very difficult to make investment decisions based on speculation of what the Fed may do in a couple years.