Stock Market Breaking News: Stock Market Stabilizes After 3 Weeks of Gains, Congress Considers Changes to Your 401(k)

We want to help you make more informed decisions. Certain links on this page – clearly marked – may direct you to a partner website and allow us to earn a referral commission. For more information, see How we make money.

This week in stock market news, US stocks are flat, meaning they are neither rising nor falling, ending a three-week streak of positive gains. There are five million more jobs than available workers and unemployment remains at historic lows, so job seekers, now is the time to negotiate an incredible salary. But those looking for a home or an investment property could soon face mortgage rates above 5%.

Everyone’s eyes are on the Fed because of its strategy to rein in the highest inflation in 40 years and shrink the central balance sheet by $95 million a month, likely starting in May. Stock prices reflect negatively on this news, as it could reduce consumer spending and corporate profits, and increase interest in government-backed securities like treasury bills and bonds, hurting investment. This is a difficult balance for the Fed to strike – and that is why, as an investor, you need to watch interest rates closely.

Pro tip

Even – and especially – when the stock market is volatile, the best thing to do is to be aware, but stick to your investment plans. It is impossible to time the market, and historically speaking, it is always recovered. Stay the course through the dips and peaks, and remember why you’re investing.

And later this year, your 401(k) could work very differently if a new bill is enacted.

Here’s what that means for you:

  • You may have noticed that your portfolio is not making gains, but has recently recovered from the drop caused by Russia’s invasion of Ukraine. April is generally a good month for investors, so stay the course and keep investing. Low-cost, broad-market index funds are a great choice for diversifying and holding for the long term, such as for your retirement.
  • Claims for jobless benefits last week were 166,000 – the lowest since 1968 – a sign of a strong and recovering economy. This is a great time to look for a new job or ask for a raise for your current position. There are currently more vacancies than available workers, so you are spoiled for choice. In the meantime, do you just want to earn some extra cash to offset the rising cost of inflation? Here are five expert tips for starting a side hustle.
  • Speaking of inflation, the Federal Reserve could raise interest rates by 50 basis points, or 0.5%, which is higher than the 25 basis points expected by investors, “if inflationary pressures remain high or intensified,” according to the Fed. This would mean higher borrowing costs and less money in circulation, leading to less spending and slower economic growth, which means less inflation. The Fed also wants to reduce its balance sheet by $95 million a month to fight inflation, which creates more demand for government-backed securities. Generally, a larger balance sheet is considered better for the stock market.
  • If you’re looking for a new home, don’t be surprised if mortgage rates jump above 5% this month. Breaking the 4% mark broke a psychological barrier for many buyers, but experts warn that rates are still low overall. If you’re waiting for the housing market to crash, don’t. Buying a home may still make sense for many people, but do the numbers first to see if it makes sense.
  • And finally, Congress has a new bill that could change how 401(k) retirement plans work by the end of the year. It includes, among other things, automatic enrollment at 3% of your salary, increased catch-up contributions for pre-retirees aged 62 to 64, reduced tax penalties, deferred minimum required distributions and access for certain part-time workers. Auto-enrollment would mean that everyone with access to a plan would receive the benefit, starting at 3% of their salary, and there would also be a 1% annual increase until you hit 10%. This would mean more people saving for retirement and investing in securities.
    • Here’s what it all means: Catch-up contributions would allow older workers to add an additional $10,000 to their retirement accounts beyond current annual limits, or $6,500 in 2022. Delayed mandatory withdrawals could raise the age at which you must start to withdraw your funds from age 72 to 75, which allows three additional years of tax-free growth for people who want to continue working or enjoy more time in the market. The proposed bill would also allow part-time workers who work 500 hours a year for two years (an average of 10 hours a week) to contribute to their retirement. This would include freelancers, consultants, independent contractors and gig workers. As if that weren’t enough, the bill also offers matching for student loan payments and more of a small business tax credit for enrolling workers in a plan, which means you could get matching by workplace to pay your student loans and even more workers gaining access to retirement plans. All of those things might not add up, but it could go a long way toward reducing reliance on Social Security, which has a 75-year deficit because there aren’t enough workers contributing to the pool of current fund, and is expected to be depleted by the mid-2030s. If this happens, you will either get reduced benefits or have to pay more payroll taxes to keep the program alive. There are also pensions, which are almost non-existent because very few employers still offer them.

Linda García, founder of In Luz We Trust, says the market is always looking to the future and recent news, good and bad, has already entered the market. “That doesn’t mean we can’t get bad news and the market won’t fall anymore,” she says.

The moment you hear about what is affecting the market, as an investor it is good to remember that the market has already reacted. What happens next is anyone’s guess, of course, but historically the market always goes up. The dips and gains are part of the journey, and you’ll see volatility if you have a long investment timeline. The best plan is to stay invested. If you’re enthusiastic, you might even see short-term losses as a chance to buy more stocks at a discount, but keep your money in the stock market for as long as possible. You don’t want to pull out when the market starts to fall.

Investors will face four to six more interest rate hikes that could impact the second half of the year, especially if they temper excessive consumer spending. This will affect many sectors of the economy as it is so dependent on lending money to borrowers, mortgage interest rates and business profits at the daily cost of living. Any other news only amplifies the effects.

For now, major US indices remain subdued, although corporate earnings reports that are expected to show growth and earnings, and start in earnest in mid-April, could have a positive contribution later this month. as we dive into the second quarter. The market looks to the future, and so do we.

How Investors Should Manage Stock Market Volatility

For new investors, large market swings can be difficult to manage. There’s a lot of uncertainty right now due to rising interest rates, rising house prices and rising commodity prices due to inflation – and the market reflects this on a day-to-day basis.

But if you have a buy-and-hold strategy with broad, low-cost index funds, remember that slow and steady wins the race. The best performing portfolios are those with the longest time in the market.

“The most important thing is to always remember why you are investing,” says Thomas Muñoz, associate financial life advisor at Telemus, a financial advisory firm. “Short-term volatility is obviously something people should be aware of. But if you have a long time horizon, historically the stock market goes up. And when it does, it’s important to have the discipline to maintain the average dollar cost of your [investments].”

Cost averaging spreads your deposits over time, and this strategy works best “during a period of high stock market crash,” says Rebecka Zavaleta, creator of the First Milli investment community.

Whatever you do, invest early and often, especially if you have a long investing schedule. Dips and crashes will happen, along with other scary things like economic bubbles, bear markets, corrections, death crosses, and recessions.
You can even take advantage of a downturn to invest more, but not if it impacts your usual investment schedule, advises Muñoz. It’s hard to tell when there will be a decline or a correction, and “even the best investors in history can’t time the market.” The best advice is to stick to your plan and keep investing.


Comments are closed.