Many people like to feel at least a little bit of fright. <\/p>\n
That has been the whole point of Halloween for ages. The spooky traditions might even be a sort of hedge, a way to limit carnage should darker days lurk around the corner. <\/p>\n
\n
Where it gets trickier is when fear impacts a nest egg, retirement fund or portfolio holdings. And fear of looming mayhem has been higher in October, with a sharp selloff causing the S&P 500 index
\n SPX
\n to break below the 4,200 level, landing it in a correction on Friday. It also joined the Nasdaq Composite Index in falling at least 10% from a summer peak.<\/p>\n
In addition, a brutal bond-market rout has pushed the 10-year and 30-year Treasury yields
\n BX:TMUBMUSD10Y
\n up dramatically, with both recently dancing around the 5% level, which can drive up borrowing costs for the U.S. economy and cause havoc in financial markets.<\/p>\n
\u201cRound numbers matter,\u201d said Rich Steinberg, chief market strategist at The Colony Group, which has $20 billion in assets under management. He said the backdrop has investors trying to figure out \u201cwhere to put money\u201d and wanting to know \u201cwhere can we hide?\u201d<\/p>\n
\u201cWhen you get into a fear cycle, the dynamics can get out of whack with reality,\u201d Steinberg said. He thinks investors won\u2019t go wrong earning roughly 5.5% on shorter term risk-free Treasurys, while penciling in stock prices they like. <\/p>\n
\u201cThat\u2019s where investors really get rewarded over the long-term,\u201d he said, granted they have enough liquidity to ride out what could be elongated patches of volatility.<\/p>\n
Increasingly, investor worries tie back to U.S. government spending, with the Treasury Department early next expected to release an estimated $1.5 trillion borrowing need to accommodate a large budget deficit. That would unleash even more Treasury supply into an unsettled market, and potentially strain the plumbing of financial markets. <\/p>\n
Higher U.S. bond yields threaten to make it more expensive for the federal government to service its debt load, but they also can be prohibitive for companies, sparking layoffs and defaults.<\/p>\n
Fed decisions, yields<\/h2>\n
The Federal Reserve is expected to hold its policy interest rates steady on Wednesday following its two-day meeting, keeping the rate at a 22-year high in the 5.25%-5.5% range.<\/p>\n
The real fireworks, however, often appear during Fed Chairman Jerome Powell\u2019s afternoon press conference following each rate decision.<\/p>\n
\u201cI firmly believe they are done for good,\u201d said Bryce Doty, a senior portfolio manager at Sit Investment Associates, of Fed hikes in this cycle, which he notes should set up bond funds for a banner 2024, after two rough years, given today\u2019s higher starting yields.<\/p>\n
Yet, Doty also sees two \u201cwild cards\u201d that could rattle markets. Heavy Treasury debt issuance could overwhelm liquidity in the marketplace, causing yields to go up higher and potentially force the Fed to restart its bond-buying program, he said. <\/p>\n
War abroad also could expand, including with the Israel-Hamas conflict, which could spark a flight to quality and push down U.S. bond yields. <\/p>\n
With that backdrop, Doty suggests adding duration in bonds
\n BX:TMUBMUSD03M
\n as longer-term yields rise above short-term yields, and the so-called Treasury yield curve gets steeper. \u201cThis is the time,\u201d he said. Investors should \u201ckeep marching\u201d out on the curve as it steepens.<\/p>\n
\u201cYields, in my mind, have been the main challenge for the equity market,\u201d said Keith Lerner, chief markets strategist at Truist Advisory Services, while noting that stocks have been wobbly since the 10-year Treasury yield topped 4% in July.<\/p>\n
Lerner also said the near 17% drop in the powerful \u201cMagnificent Seven\u201d stocks, while notable, isn\u2019t as bad as in some other S&P 500 index sectors, like real estate, were the retrenchment is closer to 20%. <\/p>\n
\u201cWe\u2019ve had a pretty good reset,\u201d he said, adding that lower stock prices provide investors with \u201csomewhat better compensation\u201d for the uncertainties ahead.<\/p>\n
\u201cThis is one of the most challenging investment environments we\u2019ve seen in a long time,\u201d said Cameron Brandt, director of research at EPFR, which tracks fund flows across asset classes.<\/p>\n
With that backdrop, he expects investors to keep more dry powder on hand through the end of this year than in the past.<\/p>\n
The Dow Jones Industrial Average
\n DJIA
\n shed 2.1% for the week and closed at its lowest level since the March banking crisis. The S&P 500 lost 2.5% for the week and the Nasdaq Composite fell 2.6% for the week.<\/p>\n
Another big item on the calendar for next week, beyond the Treasury borrowing announcement and Fed decision Wednesday is the Labor Department\u2019s October jobs report due Friday. <\/p>\n<\/p><\/div>\n
Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"Many people like to feel at least a little bit of fright. That has been the whole point of Halloween for ages….<\/p>\n","protected":false},"author":1,"featured_media":6775,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[25],"tags":[],"class_list":{"0":"post-6774","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-markets"},"yoast_head":"\n
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