The stock market fell last week, with the S&P 500 shedding 1% to close at 5,954.50. Despite this decline, the index is still up 1.2% year to date. Historically, market drops cause investors to feel anxious about potential more considerable sell-offs.
This fear is rational, as stock market history shows regular ups and downs. Nevertheless, over the years, familiarity with data has helped some investors become less prone to making emotional decisions about their portfolios. According to a recent blog post, emotions and investing don’t mix.
Emotional investors tend to sell when the market is going down and buy when it is going up — the opposite of what they should be doing. For instance, owning the U.S. stock market on the day after down days since SPY began trading in 1993 would have resulted in an 851% gain, compared to just a 44% gain if owned on the day after up days. We’ve also discussed the impact of daily news intake.
If investors only received monthly, quarterly, or annual stock market updates, the odds of encountering positive news would be higher. This can lead to more rational decision-making and reinforce the strategy of buy-and-hold as opposed to emotionally driven trading. Despite the recent downturn, the best strategy for long-term investors remains to hold steady through potential significant downturns.
Clear goals and a thoughtful strategy based on individual needs are key to successful investing. Several notable data points and macroeconomic developments emerged recently:
Nondefense capital goods, excluding aircraft, rose 0.8% to a record $75.1 billion in January. These core capex orders are a forward-looking indicator of economic activity, showing a recent uptick after previous slower growth.
Inflation cooled in January, with the core PCE price index — the Federal Reserve’s preferred measure — up 2.6% year-over-year.
Market dips and investor emotions
Month-over-month, it rose 0.3%.
The annualized rolling three-month and six-month figures were 2.4% and 2.6%, respectively. Given these figures, inflation rates are near the Federal Reserve’s target. Personal consumption expenditures declined 0.2% month-over-month in January to an annual rate of $20.4 trillion, with inflation-adjusted real spending falling by 0.5%.
Chase Consumer Card data showed a 0.1% increase year-over-year as of February 21, 2025. Bank of America’s data indicated total card spending per household was down 0.9% year-over-year in the week ending February 22. The Conference Board’s Consumer Confidence Index declined for the third straight month in February, with pessimism about future business conditions and income rising.
Interestingly, this weak sentiment contrasts with resilient consumer spending. Views on the labor market worsened in February, with fewer consumers saying jobs were “plentiful” and more saying jobs were “hard to get.” Initial unemployment claims rose to 242,000 in the week ending February 22, indicative of a cooling labor market. Gas prices dropped by three cents to a national average of $3.12 per gallon.
Gasoline demand increased slightly, while production decreased last week. The average 30-year fixed-rate mortgage declined to 6.76%, the lowest level over two months. This decline, combined with modestly improving inventory, is a positive sign for prospective homebuyers.
Home prices rose 0.5% month-over-month in December, suggesting stability in the housing market. In conclusion, while signs of economic cooling exist in various sectors, key indicators suggest resilience in consumer spending and business investment. Long-term investment strategies focus on holding through volatility and maintaining clear, goal-oriented plans.
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