By John Stewart
Chief Investment Officer at Farmers Trust Co.
Week in Review: The Rally Hits a Wall
My, how quickly things can change – investors were just celebrating fresh new highs in the stock market, driven in large part by technology stocks and, more specifically, everything AI-related, such as semiconductors.
What goes up quickly can easily come down just as fast, however, and all it took was a more cautious tone from some of the large tech companies to cause some profit taking – the semiconductor index is now down 10% in the past week.
Several large tech companies have also been issuing new equity or have announced plans to raise equity capital, which dilutes existing shareholders – all that in front of the biggest IPO in history – SpaceX.
This is all coming amid sticky inflation, so the Fed is unlikely to be able to lower rates anytime soon to help provide more liquidity to the market.
Best buckle up for a summer of volatility.
Featured Insight: You Don’t Have to Follow the Crowd
Some people feel like there’s safety in numbers – and that can be true depending on the situation.
When it comes to investing, however, you don’t have to do what everyone else is doing.
In fact, following the crowd is typically a good way to get yourself into trouble in the stock market.
The recent move in AI-related stocks is a good example – if you got in early, you could have made a lot of money, but if you got caught up in the hype of the past few months, you may be feeling the pain right now.
It’s important to stick to a disciplined plan and stay diversified. It’s OK to get exposure to new trends and themes – just don’t get sucked into the emotion of it, don’t chase the crowd and don’t put too many eggs in one basket.
Looking Ahead: First Meeting for New Fed Chair
New Federal Reserve Chair Kevin Warsh’s first Federal Open Market Committee meeting as chairman is scheduled for next week, with the policy announcement at 2 p.m. Wednesday.
Most investors expect the Fed to keep the benchmark interest rate, the Fed Funds rate, steady in the 3.50% to 3.75% range.
Although Warsh would like to chart a path to lower rates, stubbornly high inflation, driven at least in part by higher oil prices due to the Iran conflict, is making that quite difficult, at least in the near term.
This is a classic case of being careful what you wish for though. If the Fed does get a chance to lower rates this year, it may be because the economy is weakening, not exactly something most investors are hoping for.