The Week on Wall Street
Investors reacted to two major news items last week, one far more of a surprise than the other. The Fed Reserve did indeed make a rate cut, matching Wall Street expectations. Drone strikes on two of the world’s largest oil fields brought a shock to the global oil market.
FACT OF THE WEEK
Today marks the first day of the 2019 autumnal equinox - the first day of the fall season! Equinoxes happen twice throughout the year, on the first days of spring and fall when the hours of daylight and darkness are almost equal. The start of the season is closely followed with shorter crisp days and leaf peeping visitors as they tour the foliage-blessed states and take in the beautiful fall colors.
At Friday’s closing bell, stocks wound up with weekly losses after news broke that Chinese trade officials were heading home from the U.S. sooner than planned. The S&P 500 retreated 0.51% week-over-week; the Dow Jones Industrial Average lost 1.05%, and the Nasdaq Composite dipped 0.72%. In developed foreign markets, shares tracked by the MSCI EAFE index fell 0.31%.
Another Quarter-Point Cut
Wednesday, the Federal Open Market Committee voted 7-3 to lower the benchmark interest rate by another 0.25%, to a range of 1.75% to 2.00%.
While traders looked for signs of future guidance on monetary policy, little emerged from the latest Fed policy statement and Fed chair Jerome Powell’s subsequent press conference. The updated dot-plot forecast showed that seven Fed officials anticipated at least one more cut before 2020, while ten did not.
Oil Prices Jump
As last week began, crude oil futures spiked in response to an attack that interrupted roughly 5% of the world’s oil production. The value of West Texas Intermediate crude, the U.S. benchmark, spiked 14.7% in a day, starting at $8.05 and reaching $62.90 by Monday’s close.
This was oil’s biggest one-day leap since September 2008. Prices came down from there: Friday, WTI crude settled at $58.48.
So, what day last week saw the biggest loss or gain for stocks? Not Monday, when the market absorbed news of the Saudi oil field strike. Not Wednesday, when the Fed rate cut occurred.
Instead, it was Friday, when the S&P 500 lost only 0.49%. It just goes to show that stocks may ride through seemingly market-moving events with little daily change.
FINANCIAL STRATEGY OF THE WEEK
Am I holding too much cash?
Many investors hold large amounts of cash as they await the next market downturn and seek safety of principal. But is this the best strategy?
Although return expectations for investments aren't what they used to be, by staying overweight cash, you may be missing out on years of compounding returns. And cash is not just earning little to no return, it will also lose purchasing power during times of inflation. While keeping some cash in your portfolio can be a good thing, it is extremely easy to make the mistake of keeping too much cash for too long.
The amount of cash you hold should be dependent on:
• Your emergency reserve need (Typically 3 - 6 months of expenses)
• Your short and long term financial goals
• Your risk tolerance
Although many investors use large cash positions to manage risk, this is not a prudent investment strategy. There is a large world of alternatives available to risk averse investors that may better help them to accomplish financial goals.
As always, please contact my office with any questions or financial concerns you may have.