Market Update: Stocks Rotate into Bonds Ahead of the Fed's Rate Cut

With the recent news of lower-than-expected new employment in the US, the Federal Reserve is widely anticipated to cut rates in September. This cut is expected to be a substantial 0.5 points, rather than the prior anticipated 0.25 points, signaling to the market that the Fed may be behind the curve in achieving a "soft landing." While the exact market reaction remains uncertain, we can expect increased volatility this summer. Investors, who have experienced a relatively calm market this year, may find the shifts surprising. However, those holding bonds will benefit, as bond prices typically rise when rates drop, marking the first return in bond profits since 2020.

Other headline events could further destabilize the market, including a Presidential election and two ongoing wars. One of these conflicts may involve the US directly, as Israel prepares for potential retaliatory strikes from Iran. Interestingly, President Biden's withdrawal from the election race has not disrupted the markets, suggesting that political developments may play a lesser role in market performance, leaving the Federal Reserve's actions as the primary driver.

Tech stocks have experienced significant volatility this year, recently pulling back 10% from their highs last week. Such pullbacks are normal and healthy, as tech is known for its volatility.

A diversified portfolio remains the best defense against volatility. Avoiding over-concentration in tech or any single sector is crucial for long-term investors aiming to preserve and grow wealth. As we continue to monitor the market, now is an excellent time to review your risk tolerance and consider potential adjustments.

Long-term investors should remain confident that, despite potential rate-induced volatility, asset investing—such as stocks and bonds—continues to be the most effective strategy for building wealth.

At Eureka Wealth Management, I monitor markets and provide tailored recommendations to clients. I also offer financial planning and insurance strategy services. Contact us for a free initial consultation at (760) 537-0791 or book a meeting online at eurekawealthmanagement.com.