You may have heard by now that the markets experienced their biggest drop on Tuesday since June 2020. The S&P 500 fell 4.3% and the tech-heavy Nasdaq composite dropped more than 5%.1,2 What happened? Persistent inflation is continuing to influence investor sentiment. This is indicated by the market’s drop following Tuesday’s release of the government’s August Consumer Price Index.3 Not only are prices remaining on the rise (food is up 11.4% year-over-year), but all eyes now fall on the Federal Reserve to see what their response may be. The Fed’s primary weapon in fighting high inflation is to increase interest rates. But this requires a careful balancing act.3 Raising rates may curb inflation, but it could also push the economy closer toward a recession. Of course, the opposite is possible as well. Not acting aggressively enough would likely mean prolonged periods of high inflation. This situation, which has been exacerbated by August’s CPI report, makes traders nervous. Nervous traders may be quick to sell stocks, as we saw today. Short-term ups and downs can be emotional to watch as an investor. But working with a trusted financial partner allows you to see past the news stories and focus on what really matters — your long-term goals.
2 The S&P 500 Composite Index is an unmanaged index that is considered representative of the overall U.S. stock market. The Nasdaq Composite Index is an unmanaged index that is considered representative of small-capitalization companies. Index performance is not indicative of the past performance of a particular investment. Past performance does not guarantee future results. Individuals cannot invest directly in an index. The return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost 3 BLS.gov, September 13, 2022 |
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