These past couple weeks showed exactly why we have been calling interest rates and inflation the bogeymen to this market. Let’s now talk about the sell-off and diversification.
We hope that you found the focus we placed on interest rates and inflation helpful because we knew it would be the talk of financial media and that it could cause a sell-off. For this week, lets focus on the sell-off in the Nasdaq. From its intra-day high to its intra-day low, the Nasdaq sold off 8.5%. This is a normal sell-off. In fact, you should expect selloffs of 5-10% to happen a couple times a year and – if you do – it makes them a lot easier to deal with when the sell-off does occur. What also makes a selloff easier to deal with is diversification. As growth stocks were struggling, value stocks were not, broad-based commodities were not. As bonds were struggling, floating rate bonds were not. Time will tell if this sell-off is over but looking at the month of February as a whole, segments of the stock market did provide some nice positive returns.
For the week ahead, there is a good amount of data releases from manufacturing to services. The main data points may be the ones ending the week and those are jobless claims and the employment report. If these reports exceed expectations does it result in interest rates moving higher? And if so, interest rate headlines will probably be sticking around.
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