Personal Finance
Here’s what a ‘buffalo’ market means for investors
The Charging Bull in the Financial District in New York City.
Mairo Cinquetti | Nurphoto | Getty Images
After weeks of hitting new highs, the S&P 500 index on Wednesday suffered its worst trading session since 2022.
The market broadly began to recover Thursday amid a sell-off in technology stocks. Experts say those stock moves and shuffling sectors are common during a bull market.
But Bank of America is calling today’s conditions something else — a buffalo market — which is still in the bull family. But unlike the bull market, it may get tired after a strong runup.
“It might roam, it might wander in the summer months,” said Marci McGregor, head of portfolio strategy at Merrill and Bank of America Private Bank. “But ultimately, what will turn the buffalo back to a proper bull is fundamentals.”
The firm’s outlook sees markets finishing higher this year, based on factors including earnings, the investment cycle, financial conditions, interest rates and generative artificial intelligence.
“We think those fundamental ingredients are in place for the uptrend to continue,” McGregor said. “But you may get some choppiness.”
Expect a pickup in volatility around the election
Election years also tend to come with distinct market patterns.
From July through November, investors can expect a choppy feeling to the markets, McGregor said.
Once the election is over, there may be a strong broader direction in November and December.
Bank of America therefore expects U.S. equities to end the year higher than where they are today, she said.
Those patterns tend to hold true regardless of the outcome on Election Day, according to McGregor.
To best forecast how investments will fare under the next presidential administration, it is wise to pay more attention to policy than politics, McGregor said. The policies that are actually put into effect will have a bigger influence on sectors, industries and companies than which party is elected to power.
The current earnings recovery — following an earnings recession in the first half of last year — is a bigger factor to watch now, McGregor said.
“Ultimately, I think this really comes back to earnings,” McGregor said. “That’s what I really see as the catalyst for the next rotation of the market, more so than the election.”
Resist the temptation to hold too much cash
Higher interest rates put in place by the Federal Reserve have provided the best returns on cash in years.
Yet, experts have started to signal that some investors may be making the mistake of holding too much cash.
“Under-investing is a risk,” Callie Cox, chief market strategist at Ritholtz Wealth Management, recently told CNBC.com.
More from Personal Finance:
How to find out how big your Social Security benefits may be
IRS issues final rules for inherited IRAs
How kids from rich families learn about money
Likewise, McGregor said she has started to warn clients that the current higher returns on cash will not always be available and sitting out the market gains carries risks. Bank of America expects the Fed to start cutting rates this year, with a first cut in September followed by another in December.
Sitting out of the markets may have lasting lifetime consequences for investors who are working to meet long-term goals. That goes particularly as the markets are up more than 60% since October 2022, according to McGregor.
“If we get a pullback and we get a pause in the market, we will view it as a buying opportunity if clients are not at their target allocation,” McGregor said.
Sdi Productions | E+ | Getty Images
The U.S. job market has undergone a dramatic transformation in recent years, from one characterized by record levels of employee turnover to one in which there is little churn.
In short, the “great resignation” of 2021 and 2022 has morphed into what some labor economists call the “great stay,” a job market with low levels of hiring, quits and layoffs.
“The turbulence of the pandemic-era labor market is increasingly in the rearview mirror,” said Julia Pollak, chief economist at ZipRecruiter.
How the job market has changed
Employers clamored to hire as the U.S. economy reopened from its Covid-fueled lull. Job openings rose to historic levels, unemployment fell to its lowest point since the late 1960s and wages grew at their fastest pace in decades as businesses competed for talent.
More than 50 million workers quit their jobs in 2022, breaking a record set just the year prior, attracted by better and ample job opportunities elsewhere.
The labor market has gradually cooled, however.
The quits rate is “below what it was prior to the start of the pandemic, after reaching a feverish peak in 2022,” said Allison Shrivastava, an economist at job site Indeed.
Hiring has slowed to its lowest rate since 2013, excluding the early days of the pandemic. Yet, layoffs are still low by historical standards.
This dynamic — more people stay in their jobs amid low layoffs and unemployment — “point to employers holding on to their workforce along with more employees staying in their current jobs,” Shrivastava said.
Big causes for the great stay
Employer “scarring” is a primary driver of the so-called great stay, ZipRecruiter’s Pollak said.
Businesses are loath to lay off workers now after struggling to hire and retain workers just a few years ago.
More from Personal Finance:
How much does Mariah Carey earn from ‘All I Want For Christmas Is You’?
Why mortgage costs jumped after the Fed cut interest rates
Investors are putting more into their 401(k)s
But job openings have declined, reducing the number of quits, which is a barometer of worker confidence in being able to find a new gig. This dynamic is largely due to another factor: the U.S. Federal Reserve’s campaign between early 2022 and mid-2023 to raise interest rates to tame high inflation, Pollak said.
It became more expensive to borrow, leading businesses to pull back on expansion and new ventures, and in turn, reduce hiring, she said. The Fed started cutting interest rates in September, but signaled after its latest rate cut on Wednesday that it would move slower to reduce rates than previously forecast.
Overall, dynamics suggest a “stabilizing labor market, though one still shaped by the lessons of recent shocks,” said Indeed’s Shrivastava.
The great stay means Americans with a job have “unprecedented job security,” Pollak said.
But those looking for a job — including new college graduates and workers dissatisfied with their current role — will likely have a tough time finding a gig, Pollak said. She recommends they widen their search and perhaps try to learn new skills.
Fraud guilty plea from accountant over $1.4M mortgage loan
AICPA wants SEC to reject PCAOB standard on firm and engagement metrics
Aiwyn raises $113M in funding from KKR, Bessemer
New 2023 K-1 instructions stir the CAMT pot for partnerships and corporations
Are American progressives making themselves sad?
U.S. Beneficial Ownership Information Registry Now Accepting Reports
-
Leaders1 week agoAliko Dangote – The Architect of African Industrial Transformation
-
Economics1 week agoKaren Friedman Agnifilo: A Champion of Justice and Legal Expertise
-
Accounting1 week agoMastering Petty Cash Management: Best Practices for Efficiency and Control
-
Technology1 week agoThe Rise of Generative AI and Its Applications: Transforming Industries
-
Economics1 week agoHow to Mitigate Inflation’s Impact on Low Income Earners
-
Economics1 week agoIs America’s opioid epidemic finally burning out?
-
Economics1 week agoMore than half of Gen X parents worry about supporting their adult kids, survey shows
-
Economics6 days agoUK inflation, November 2024