What stocks will go up this week

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Stocks finished higher on Tuesday, recovering from the losses sustained after comments from a Federal Reserve official sent the market into a downturn last Thursday. 

As of market close on Tuesday, the S&P 500 was up 1.36%, the Dow Jones Industrial Average was up 1.18%, and the Nasdaq Composite was up 1.36%.

St. Louis Fed President Bullard said last Thursday that “the policy rate is not yet in a zone that may be considered sufficiently restrictive” to cool down rampant inflation. Policy rate refers to the underlying interest rate that affects the cost of borrowing money throughout the economy. Further, he noted this year’s series of interest rate increases “have had only limited effects on observed inflation.” 

Translation? We might end up with a higher terminal interest rate than originally expected. The terminal rate is currently projected to plateau in the 3.75% to 4% range, but Bullard’s remarks suggest the rate could be in the 5% to 7% range at the upper end. 

“Until we get to a point where everyone agrees [inflation] is significantly coming down and we’re closer to this terminal rate, I think anybody that makes any comment that has any clout, you’re going to see the market move,” says Ashley Sullivan, CFP®, private wealth advisor at LVW Advisors. “We’ve never heard anyone say seven [percent]. So I think that really spooked the market.” 

Meanwhile, earnings season wrapped up with encouraging data for retail stocks as consumers look forward to Black Friday deals and discounts. Best Buy’s stock price gained 11% after the company’s quarterly report results beat expectations, making it one of the best performers in the S&P 500 on Tuesday. 

Another encouraging sign for stocks is the results from the midterm elections pointing to a divided Congress, with Republicans gaining control of the House of Representatives while Democrats retain control of the Senate. The market likes that “because it’s a political gridlock,” Sullivan explains. “That favors well, where you’re not going to have sweeping change in any one area – specifically taxes.” That tends to be a benefit for the stock market, she says. While we won’t know the full midterm election results pending results and runoffs from the tightest elections, it looks like both wings of Congress have secured their positions.  

Regardless of what the market does (or what election results say) through the end of the year, experts recommend staying the course and dollar-cost averaging toward your long-term investment goals.

Pro Tip

Even – and especially – when there’s volatility in the stock market, the best course of action is to be aware, but stick to your investing plans. It’s impossible to time the market, and historically speaking, it’s always recovered. Stay the course through the dips and peaks, and remember why you’re investing.

Why the Federal Reserve Is Raising Interest Rates Right Now

For the last several years, bountiful jobs, record-high wages, and low interest rates heated up the economy to a point where everyday expenses like food, utilities, and housing are now more expensive. 

Two of the Fed’s central mandates are to maintain low unemployment and keep inflation at a healthy level — around 2%. It does that through monetary policy, including adjusting the money supply in the country to make interest rates move toward the target rate they set.

The intention of the recent rate increases is to “reduce demand for consumer products, which is going to, in turn, slow down inflation,” explains Daly Andersson, co-owner and managing partner at Tenet Wealth Partners.

That’s because higher interest rates mean higher costs of borrowing for businesses and individuals, which should cool down demand and reduce long-term price growth. However, raising interest rates too fast or high could potentially lead to an economic recession in the short term, which the Fed wants to avoid – but it’s a delicate balance to get right.

There’s still one more Fed meeting this year in December, which investors eagerly await. 

“We just saw some expectation changes in terms of what the Fed will do,” at the next meeting, Andersson says, referring to the stock market’s reaction to October’s positive CPI report. “There’s more expectation that the rate hike is going to be 50 basis points rather than 75. And maybe even expectations that if inflation continues to abate and we see some effects from their policy, that maybe they don’t have to be as stringent with rate hikes throughout 2023.” 

Will the Stock Market Recover? 

As the Fed navigates inflation and uses interest rate hikes as the main tool to curb it, investors are weighing the possibility of whether we’ll have a recession or a so-called “soft landing.” 

Though it may seem counterintuitive, signs of a slowing economy are actually what investors are looking for. “Any numbers that are showing a more restrictive economy are going to be positive [for the stock market] in terms of showing that it’s going to lead to lower inflation numbers,” Andersson says. “Inflation is still going to be that lagging indicator. It’s going to take a while to see a difference in those figures.” 

Whatever happens, experts are expecting a volatile finish to 2022 – and where the market is headed is anyone’s guess. As we wrap up the final earnings season of the year, companies have lowered their Q4 outlook because of increased prices and borrowing costs, as well as a persistently strong U.S. dollar, which makes U.S. exports more expensive for other countries. 

We’re already seeing some prices drop, such as for lumber and gasoline, but inflation remains stubbornly high.

Keep in mind that investments easily outpace inflation over time – even with the normal ups and downs, which are a normal function of a healthy market. 

“Part of investing in the market is accepting that there can be volatility and risk,” Andersson says. “But over longer time horizons, overall the growth path is positive. That’s the reason we all invest.” 

How Investors Should Deal With Stock Market Volatility

For new investors, big swings in the market can be a lot to handle. There’s a lot of uncertainty right now because of interest rate hikes that raise the cost of borrowing, as well as everyday commodities getting more expensive due to inflation — and the market reflects that on a day-to-day basis. 

But if you have a buy-and-hold strategy, remember that slow and steady wins the race. The best-performing portfolios are the ones that have the most time in the market. 

“This is where things get challenging for all of us, because we’re human,” Andersson says. “We have emotions when it comes to our own money. But what we’ve seen historically is when we react to [market volatility], it’s often to our own detriment.” 

“Going against the grain and [doing] what feels counterintuitive is actually the right thing when it comes to investing,” adds Sullivan. There are opportunities now, she says, “for us to lock in higher yields on the highest quality asset in the world” – the stock market. 

Experts recommend diversifying your portfolio with low-cost, broad-market index funds, so your eggs aren’t all in one basket. Make sure your investments are appropriate for your goals, timeline, and risk tolerance.

Dollar-cost averaging spreads out your deposits over time, and has been demonstrated to perform better during a period of high market crashes, according to Rebecka Zavaleta, creator of the investing community First Milli. 

Whatever you do, invest early and often, especially if you have a long investment timeline. Dips and crashes will happen, and so will other scary-sounding things like economic bubbles, bear markets, corrections, and recessions. 

You can even take advantage of a dip to invest more, but not if it impacts your regular investing schedule. It’s hard to tell when there will be a dip or correction, and no one can time the market. As an investor, the best response is to stay the course and keep investing, regardless of what the market is doing.