Investing

Traders bet on another rate cut soon, and other news affecting your money in the week ahead

Twenty/20

The U.S. stock market is shattering records once again, with the S&P 500 setting new, all-time highs in the past week. And with the month half over, this benchmark is up 4.6%. That puts it on track for its best February since 2015.

Some of Wall Street's fears about the economic toll of the deadly coronavirus have tempered, and there are other reasons to be optimistic, too. Federal Reserve Chairman Jerome Powell on Tuesday testified in front of the House Financial Services Committee that the U.S. economy is "in a very good place," and a monthly report showed consumer prices picked up in January.

The Fed will be in focus in the week ahead because on Wednesday policymakers are scheduled to release the minutes from their January meeting. And traders are betting that the Fed will cut interest rates again by June, which marks a shift from as recently as a month ago, when they thought rates were likely to remain unchanged. In addition, people on Wall Street are monitoring the number of Americans filing for unemployment benefits, which has increased slightly this year.

Here's what to watch in the stock market during the week ahead — and how the news could affect your bottom line.

Traders bet the Fed will cut interest rates again

What's happening: In two days of testimony, Fed Chair Powell assured Congress that the U.S. economy appears "resilient" to factors that could hurt global economic growth, though central bankers are closely monitoring the coronavirus.

The minutes from the most recent Federal Reserve meeting, held in late January, are scheduled for release on Wednesday. Traders will be scouring these notes for signs that policymakers will cut rates again after doing so three times in 2019. In his testimony, Powell said Fed policy is well positioned currently.

Why it matters: Traders are increasingly betting that the Fed will cut rates and see about a 45% probability of that happening by June, up from just 20% one month ago. Meanwhile, traders see a 47% likelihood that central bankers will reduce interest rates at least twice by the end of 2020. That's at odds with the Fed's current wait-and-see stance, and Powell's recent comments about the economy.

What it means for you: The Fed lowered interest rates last year in an effort to stimulate growth. That's been a factor in making it cheaper for consumers and businesses to borrow money, like taking out a mortgage, and potentially saving borrowers thousands of dollars. At the same time, lower interest rates mean you earn less on your savings account.

More Americans filing for unemployment benefits

What's happening: The number of Americans filing for unemployment benefits has been increasing slightly so far this year, particularly among those who have been receiving these benefits for a while. The weekly average this year, at nearly 1.74 million, is higher than both the comparable time period in 2019 and the full-year average.

Economists currently project an increase in the number of new unemployment beneficiaries for the report scheduled to be released on Thursday.

Why it matters: The labor market remains relatively strong, but people on Wall Street will be watching for a rise in jobless claims, both among those people filing for the first time and those who have been receiving those benefits for a while. However, U.S. employers announced more than 67,000 job cuts in January, which was the most in 11 months and a 106% increase from December, according to figures from Challenger, Gray & Christmas, an executive outplacement firm.

What it means for you: Even if you're working full time, it can be helpful to monitor job-related indicators because they give you a sense of how businesses are faring. Generally, labor market trends remain positive, and Wall Street is watching for any sign of a shift.

Last week, for example, a report showed that optimism among small business owners jumped in January. It's well above the long-term average — and in the top 10% of historical readings. Small businesses employ a large share of the population, so if these owners cut back on hiring or shed workers, that has a broader economic impact.

More broadly, a recession doesn't appear imminent, even in 2020, so you're better off focusing on steps you can take now to safeguard your life before such a downturn occurs.

The bottom line

The market has rebounded after its bout of bumpiness in January, though experts caution that there's likely to be more turbulence ahead. In the stock market outlook for both February and beyond, Wall Street will be closely tracking the presidential election season, which experts have said has the potential to rattle the market. Still, they forecast that stock prices will continue to rise in 2020.

Remember that short-term turbulence can be a good opportunity to buy stocks at lower prices. Stick to some of the tips for beginner investors, which are sound no matter how long you've been investing.

Finally, continue adding money regularly to your portfolio, focusing on ways to manage risks and resisting the urge to sell investments. No matter what happens in any given week, it's important to keep perspective and avoid letting headline news affect your long-term investment strategy.

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