Stock Market Insights: Balancing acts – What deserves our focus?

JOE SHEARRER, is Vice President and Wealth Advisor at Fervent Wealth Management.

Since mid-August, my son and I have spent several nights and weekends going to football and baseball practices and games. My daughter doesn’t play sports and is currently in a season of fewer activities. During times like these, I’m constantly trying to be proactive in ensuring my daughter gets my attention. They both deserve my attention, but if I’m not careful, one of them may feel like they don’t matter as much.

The Fed matters, but has it been getting too much attention? Since the Fed’s announcement, the 10-year yield has risen, not fallen. This move reflects the fact that the bond market had already priced in an aggressive rate-cutting cycle. Unless a recession drags rates lower, which we don’t expect anytime soon, the boost to the economy from lower borrowing costs may be mostly behind us.

On the stock market front, volatility persists. The S&P 500 and NASDAQ have experienced fluctuations driven by uncertainty surrounding corporate earnings, global economic growth, and geopolitical tensions, particularly in the Middle East. Tech stocks, which had a strong rebound earlier this year, have been under pressure due to profit-taking and concerns over higher interest rates impacting future growth. While sectors like healthcare and utilities have been more resilient, growth stocks have been more volatile, reflecting the market’s risk-off sentiment.

Even if recession risk is low, policy risk is high with the November election just a month away. The uncertainty around policy outcomes has historically caused market volatility in the weeks leading up to elections. Stocks did just fine this September, gaining 2% during the historically weak month. Investors should stay diversified and vigilant as conditions continue to evolve in the weeks leading up to elections.

Investors also closely monitor energy prices, as rising oil prices could fuel inflationary pressures, potentially impacting consumer spending and corporate profitability. As brewing hurricanes veer towards the U.S. oil complex, infrastructure could be damaged, and WTI prices could move higher as disruption of supply concerns add to the Middle East geopolitical risk quotient.

Here are just a few of the key reasons why oil prices matter:

1. Inflationary pressure: When oil prices rise, the cost of producing and transporting goods increases. This can lead to higher consumer prices (inflation), which erodes purchasing power and may lead central banks to raise interest rates, potentially slowing economic growth.

2. Energy costs: Oil is a crucial energy source globally, so higher oil prices directly affect energy costs for businesses and consumers, raising the cost of heating, electricity and fuel for transportation.

3. Geopolitical risk: Oil prices are often affected by geopolitical events, particularly in regions with significant oil reserves. Supply disruptions due to conflict, sanctions, or political instability can create market uncertainty, leading to price volatility.

4. Consumer spending: High oil prices can reduce disposable income, as people and businesses spend more on fuel and energy. This can result in decreased spending on other goods and services, slowing economic growth.

In summary, while the Fed’s decisions and upcoming elections are important, it’s crucial not to overlook the broader market dynamics, especially the impact of rising oil prices. Investors should remain watchful of how these factors affect the economy and financial markets. Staying diversified and adaptable is vital in navigating uncertain times. Just as in personal life, where balance is needed to ensure all areas receive the right amount of attention, a balanced investment strategy is critical to weathering potential market storms. In family and finances, thoughtful attention and proactive planning can make all the difference.

Have a blessed week!

www.FerventWM.com