At the heart of the recent market sell-off is concern among those on Wall Street about a possible U.S. economic recession. For the first time since December 2005, the yield on the 10-year Treasury note on Wednesday fell below the two-year rate, a phenomenon that's been a reliable indicator for recessions in the past.
There were already signs the economy was slowing; that was why the Federal Reserve cut interest rates at its July meeting. Fresh threats in the U.S.-China trade war have also added to concerns.
This week, Wall Street will focus again on the Fed, along with a slew of reports on the housing market. Here's how the news could affect you.
What's happening: Federal Reserve policymakers cut interest rates in July in an effort to stimulate economic growth amid signs of a slowdown. This week, traders will get some additional context about that decision when the minutes from the Fed's July meeting are released on Wednesday.
In addition, policymakers will convene Thursday through Saturday in Jackson Hole, Wyoming, for a symposium on the topic of monetary policy. Traders will monitor the discussions from this event for clues about the central bank's next steps.
Why it matters: When the yield on the 10-year Treasury note fell below that of the two-year security last week — what's known as an inverted yield curve — that rattled market participants, because this phenomenon has preceded every recession since 1978.
These recession fears also raise questions about how the Fed will respond. A majority of traders are betting that the central bank could cut interest rates at least three more times by year end. Central bankers convene for their next policy meeting in mid-September.
What it means for you: The Fed's goal in lowering interest rates is to encourage businesses and consumers to borrow more money. As traders try to predict what the Fed will do to support the record-setting current economic expansion, there's likely to be more choppiness ahead in the stock market.
What's happening: This week is a busy one for economic reports related to housing activity in July. Economists currently project that the pace of existing home sales picked up last month as compared with June, whereas new home sales slowed.
Why it matters: Buying a home is the most expensive purchase most Americans will ever make. The Fed lowered interest rates to make it more attractive for consumers to borrow money, like taking out a mortgage. That said, it will take a few months to see if that rate cut — which happened at the end of July — has a meaningful impact on the housing market.
Already, some homeowners have taken advantage of lower interest rates by refinancing their mortgages — there was a 37% spike in refinance activity one week earlier this month. But home-building activity fell for the third straight month.
What it means for you: The housing market is a key component of gross domestic product, so traders will want to see if the Fed's rate cut will help stimulate buying activity — or whether potential buyers could be spooked by the recession talk.
If you're a homeowner, you may want to check if it makes sense to refinance your loans. Shopping for a home? Mortgage rates have fallen to multiyear lows recently, though you still need to consider how much money you'll need to put down to buy.
If you're still trying to make sense of last week's market news, you're not alone: Traders are, too. But it's important to keep perspective. Yes, the S&P 500 is down from its all-time high, but it's surged more than 15% so far this year — which is more than the long-term historical average of about 10%.
Remember that bumpiness in the market can present a good opportunity to invest. And even if the economy does take a turn, your strategy doesn't have to: When investing for the long-term, experts say it's important to remain consistent.
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