The stock market is an aggregation of buyers and sellers of shares, which represent property rights over companies. These can include securities that are listed on public shares. The stock market had a winning week, as investors considered the possibility of the Federal Reserve slowing down due to sharp interest rate hikes. The S&P 500, the Dow Jones Industrial Average and the Nasdaq Composite had rare weekly gains in an ongoing bear market, which is also in the middle of the earnings season right now.
The Federal Reserve is looking for signs of economic and market slowdown as proof that rising interest rates are cooling strong inflation. Existing home sales are already at 10-year lows, with 30-year mortgage rates hovering around 7%, more than doubling the 3% rates at the beginning of the year. Unemployment claims continue to fall, which is a sign that the labor market is still too hot. Experts recommend staying the course and the average cost in dollars to achieve your long-term investment goals, regardless of what the market does.
Even when there is volatility in the stock market, the best course of action is to be vigilant, but stick to your investment plans. It is impossible to time the market and, historically, it has always recovered. The abundance of jobs, high salaries and low interest rates have heated the economy to a point where daily expenses, such as food, utilities and housing, are now becoming more expensive. The Federal Reserve's main mandates are to maintain a low level of unemployment and to keep inflation to a minimum.
It does so through monetary policy, including adjusting the country's money supply so that interest rates move towards the target rate they set. Raising interest rates too quickly or too high could lead to a short-term economic recession, something the Federal Reserve wants to avoid. There are still two more Fed meetings this year, one in November and one in December, which investors are eagerly awaiting. Companies and employees are caught between wage growth in some sectors and layoffs in others.
For now, it remains stronger than desired for the Federal Reserve, which wants the unemployment rate to approach 4%. It fell to 3.5% in September. Higher unemployment would be a bad thing, but it's contradictory because higher interest rates mean higher borrowing costs for businesses and individuals, which should cool demand and reduce price growth. Over the past few years, October can be notoriously volatile for midterm election years.
In a few weeks, we'll have the election results and more economic reports that will guide us through the rest of the year. There is also geopolitical uncertainty about the ongoing war in Ukraine and a possible energy crisis in Europe this winter. Keep in mind that investments easily outperform inflation over time, even with normal market ups and downs. For new investors, large market fluctuations can be difficult to manage. There is a lot of uncertainty right now due to rising interest rates, rising real estate prices and rising daily commodity prices due to inflation, and the market reflects this on a daily basis. The best-performing portfolios have the most time in the market.
Diversifying your portfolio with low-cost, wide-market index funds ensures that your eggs aren't all in one basket. Make sure your investments are appropriate for your goals, timelines and risk tolerance. Invest early and often, especially if you have a long investment term. There will be falls and falls, as will other things that sound scary such as economic bubbles, bear markets, corrections, death crosses and recessions. You can even take advantage of a decline to invest more but not if it affects your regular investment schedule. As an investor, the best answer is to stay the course and continue investing regardless of what happens in the stock market.
