Notes from Nagle 08/02/2024

Markets are in transition. Which is to say we are still in a Bull Market for stocks but in a seasonal transitionary period for the next 2-3 months. August - October tend to see the worst market performance of the year. Then the latter part of the year, late October through the end of the year, tend toward positive performance. It doesn’t have to happen this way but it’s statistically likely. How much in each direction is the variable no one can predict. Especially this year with an election coming up.
 
In all honesty, presidential elections have had a marginal effect on markets historically. It’s almost as if markets say “We don’t care who gets elected, just leave us alone!” But this year we are facing interest rate cuts, presumably in September and again in October or November. Lower rates are good for stock markets generally. But are especially good for bonds. Which is to say bond prices go up when interest rates go down. This is because bonds have fixed rates, and when interest rates in general go down, your fixed rate bonds having higher rates become more valuable. 
 
Think of it this way: if you own a 6% fixed rate bond today, and interest rates go down so that a similar new bond only yields 5%, your 6% bond automatically becomes more desirable. More desirable means higher price. So quality bonds as part of your portfolio may well be the best way to  ride out the next few months, if not the next year. If you’re investing in mutual funds as opposed to individual bonds, look at quality intermediate to longer term bond funds. They will react the best to lower interest rates. 

Just in: Fed Chair Powell just spoke (on Wednesday) and indicated there could be as many as 3 rate cuts this year. This is really exciting news and very favorable for the strategy discussed above. 
 
Questions or comments contact Peter J Nagle [email protected]