The U.S. stock market has enjoyed a strong start to June, after a rocky May.
The S&P 500, the benchmark for U.S. stocks, notched a second week of gains last week, putting it just 2% below its all-time high from April through Friday. Wall Street is feeling more optimistic again, as trade war worries have eased—and the Federal Reserve seems increasingly likely to cut interest rates sometime this year.
Traders will monitor a Fed meeting this week and bumpiness in the oil market, both of which could affect you financially. Here’s what they’ll be watching.
What’s happening: Federal Reserve policymakers convene this week for one of their eight annual meetings. During these two-day events, central bankers review economic and financial conditions. They also decide whether or not to raise or lower the federal funds rate—the rate banks charge other banks to lend money—which affects interest rates for financial products like car loans, credit cards, personal loans, and savings accounts.
Why it matters: Traders celebrated a few weeks ago when Fed Chair Jerome Powell signaled the central bank could cut interest rates to sustain the economic expansion. While Wall Street expects at least one rate cut by year’s end, they see only a 21% probability of that happening this week. Those odds jump to 85% for the Fed’s meeting in July.
What it means for you: In the near term, traders likely will be happy when the Fed eventually does lower rates—which could be positive for the stock market, and your portfolio. Lower rates are good if you’re a borrower, because rates for a mortgage or auto loan will go down. But you’ll also earn less money on your savings account as those rates decline.
What's happening: Oil prices had been tumbling since late April because of concerns that the ongoing U.S.-China trade spat could slow global growth and affect demand. Then, last week, prices spiked following the attack of two tanker ships in the Gulf of Oman. But oil prices fell again Monday on continued concerns of an economic slowdown.
Why it matters: The question for Wall Street types is: Do oil prices go up or down from here? Traders use oil prices as a barometer to predict a recession, since economic growth is associated with more demand for fuel. But while stocks started surging again this month, the spike in oil prices started only after the attack—and that could have been temporary.
What it means for you: You may have already noticed lower prices at the pump: Average gas prices nationwide are down about 17 cents compared with a month ago, according to the AAA. If this trend continues, your summer road trip may cost a bit less money. But the bumpiness in the oil market could eventually affect your portfolio if prices continue to fall.
Traders will fixate on the Fed’s meeting this week because they’re trying to predict policymakers’ next steps. But that doesn’t mean you need to do the same. If you’re investing for the long haul, don’t overreact to the news; keep investing and stick to your long-term financial plan.
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