After falling for three straight months ending Oct. 31, 2023, markets staged a reversal and rose. Investors interpreted the Fed’s rate pause as a sign of a rate cut. This could turn into a rally with a stunning reversal to the downside.
The market is too optimistic that the central bank will cut interest rates. It reaffirmed its quantitative tightening. By letting mortgage-backed securities and bonds mature, the money supply in the economic system shrinks. This is equivalent to a rate hike. Nasdaq gained the most last week, rising by 6.5%. The S&P 500 gained an impressive 5.85%. Investors piled back to the magnificent 7 technology firms, including Apple (AAPL).
Despite posting disappointing iPhone sales, Apple still pleased its investors with healthy service revenue. In the AI hardware space, Nvidia (NVDA) rose by 11.1% last week, while AMD added 16.4%. Tech investors ignored AMD’s weak AI prospects and disappointing graphics card sales.
The market’s monster rally may have momentum from here. It could also fade in an instant. Unless investors have time to day trade, they should look for undervalued firms that are oversold. As the global economy weakens due to higher rates, most stocks risk a correction.