Dow hits new all-time high.
What Does It Mean:
This week the Dow Jones Industrial average hit a new all-time high, closing over 37,000 on the heels of lower interest rates, softer inflation and improving investor sentiment.
Why do we care?
Think about this for a moment. One of the most notable stock market indices has now reached a level it has never seen in its history before. While broader indices such as the S&P 500 or NASDAQ are still a stone’s throw from their highs, levels we feel will be exceeded in short order, the Dow has achieved this record level in the face of two wars, elevated interest rates, inflationary pressure, and extreme US political uncertainty.
I often hear people say things such as ‘I never make money in the markets’ which is always an indication to me that they’re overcomplicating a simple and straightforward process. One of the reasons our primary investment vehicle is the indices are for this very reason. We believe investing should be kept simple with reasonable costs while avoiding unnecessary risk.
There are still many areas of the vast stock market that remain undervalued in our opinion and while we’re proud of the Dow, areas such as the Small and Mid-Cap index, are very attractive to us. In addition, other consumer staple type names such as Coca Cola (KO) remain more than 10% off all time highs. In short, despite the rapid rise in the general market, we still see vast opportunity.
What Does It Mean:
The 2-day Federal Open Market Committee (FOMC) meeting transpired this week, which concluded with a statement by Jerome Powell. Not only did the Fed maintain current rates, but they also proceeded to update their forecast for future rates indicating that in 2024 we may see upwards of 3 rate cuts. This was not a surprise to us since the economic backdrop has been changing considerably with the slowdown in the economy as the result, and a primary reason why we have remained bullish all year.
Investors cheered the news and bought up stocks at a feverish pace, particularly in areas that have been overly sensitive to higher rates such as smaller companies that typically hold greater debt loads.
Why do we care?
The Fed move aligns with our recent and forward thought process on the economy and markets. This confirmation helps us to remain confident in our opinion that stocks remain an extremely attractive investment option in the face of a peak interest rate cycle and declining inflationary pressure. That said, we’re not ignorant of the idea that the economic cycle is now shifting with, in our opinion, a foreshadowing of rising unemployment and economic struggles ahead. Before this transpires, however, we believe there is a great opportunity for the stock market to lure back in all of the money that is now sitting idle on the sidelines. We look for this to be the fuel to power further upside into 2024 and 2025.
This year has been a great lesson in the perils of following headlines. Despite a strong rise in the market, I can’t recall the last time I saw a headline that spoke of anything positive in our market. While we won’t shift our stance the moment these headlines do in fact turn positive, it is something to remember the next time you read an article or hear a story that tries to sway your opinion in an emotional manner one way or the other.
Here are just a few headlines I saw over the last few months.
Until next time
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