Current & Economic Events

There are investment methods for managing the emotions that come from market volatility. What should investors know about how they can stick to an investment plan through years and decades?

The Dow Jones Industrial Average reached 40,000 for the first time recently as markets continue to rebound from a 5% decline earlier this year. While this has felt like a difficult year for many investors due to inflation, high interest rates, and growth concerns, the reality is that the broad market has achieved 23 new all-time highs. Other asset classes, including international stocks, commodities, and even gold, have surged alongside the U.S. stock market as interest rate expectations have fallen.

In 2023 markets reversed their 2022 performance with strong gains across both stocks and bonds. The S&P 500, Dow, and Nasdaq all generated exceptional returns last year: 26.3%, 16.2%, and 44.7% respectively (with reinvested dividends). The S&P has come full circle and is now only a fraction of a percentage point below the all-time high from exactly two years ago. The US 10-Year Treasury yield climbed as high as 5% in October before falling to end the year around 3.9%, pushing bond prices higher in the process.

While war escalates in the Middle East, a political battle is also heating up in Washington. As of this writing, there is still no House speaker in Congress after Kevin McCarthy’s exit and Steve Scalise’s withdrawal. While a number of Republican and House votes are scheduled to attempt to resolve this leadership vacuum, there are more political hurdles on the horizon. This only complicates the market and economic environment for investors who are already navigating higher interest rates, Fed uncertainty, stock market volatility, and more.

Interest rates have swung wildly over the past two years in response to inflation, economic concerns, and market volatility. After falling as low as 3.3% earlier this year, the 10-year U.S. Treasury is now yielding around 4.2%, back to where it was roughly a year ago. However, while today’s long-term yields look similar to last year’s on paper, they are quite different from an economic and market perspective. What are interest rates telling us today and how does this impact long-term investors?

The world has been abuzz over artificial intelligence and its possible benefits and threats. These range from the practical, such as better tools for knowledge workers and ways for students to avoid writing papers, to the philosophical, including what it means to be sentient and how such an emergent phenomenon could impact human civilization. In between, there are more mundane questions around the economy and markets, especially for technology-related sectors. Given the promises and hyperbole around AI, what makes sense for long-term investors?