Entry Price Matters | The Investors Edge

By John Stewart, chief investment officer at Farmers Trust Co.

Week in Review: Calls for “Soft Landing” Grow

After fears that the economy was beginning to unravel near the end of October just a few short weeks ago, market participants and analysts are beginning to get comfortable with the idea of a “soft landing”.

This term “soft landing” has been getting thrown around for the past year-and-a-half to describe the potential for inflation to slow back to a reasonable level without causing a recession.

At the moment, this appears to be exactly what is happening. Fed governors are becoming unified around the idea that no more interest rate hikes are necessary given an inflation rate that has slowed back toward 3%. Many are now calling for possible rate cuts in 2024.

With longer-term interest rates now falling – for example the 10-year Treasury rate has fallen from 5% to down near 4.25% – stock investors are sending share prices back to their highs for the year.

The real question is whether or not the abating inflation pressures are actually a sign of developing economic weakness under the surface that has yet to fully manifest itself in future corporate earnings.

In fact, most economic slowdowns look like soft landings right before they become recessions. I would warn investors not to get too complacent ahead of what could be a challenging first quarter of 2024.

Featured Insight: Entry Price Matters

When the bulls are running and stock prices are rising, it can create plenty of anxiety for investors who fear missing out on potential gains.

However, the idea that you would buy an investment simply because the price is rising is not a very sound investment strategy. It could be a good trading strategy, but that is a topic for another day.

The price you pay for an investment matters. For example, many large company growth stocks are having a good year, but if you bought many of those stocks two years ago in November of 2021, you are likely still underwater on those investments, and potentially by a significant amount depending on the company.

The time to get aggressive buying stocks is after a market pullback when most investors are running scared, not after a huge rally when everyone thinks that stock prices have nowhere to go but up.

Looking Ahead: Data in Focus

The Santa Claus rally is underway! Christmas is coming early this year!

The definition of the Santa Claus rally seems be expanding; it was originally coined in 1972 in the Stock Trader’s Almanac as the tendency for the stock market to rally in the final five trading days of the year and the first two days of the new year.

Now investors are treating it as though pretty much any rally after Thanksgiving is attributable to Santa.

And why not, most retail stores are pushing Christmas the day after Halloween, some even before that.

We’ll see what December has to offer investors, but if the Santa rally got pulled forward into November, it’s entirely possible that we could be setting up for some disappointment heading into the end of the year with the need for more than just the season as the reason for stocks to keep going up.

Copyright 2024 The Business Journal, Youngstown, Ohio.