Stock Market Surges: Real Estate Leads, Fed Eyes Cuts
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Since late October 2023, the S&P 500 SPX has shown a climb of 16.6%, while the real estate sector in the U.S. benchmark index has surged even higher, boasting an impressive 26.5% return.
This uptick is attributed to the tax advantages enjoyed by real estate investment trusts (REITs), which distribute a significant portion of their earnings—around 90%—to investors via dividends. Consequently, their value tends to move in tandem with bond prices, which have seen a considerable spike due to a drop in the yield of 10-year U.S. Treasury notes, falling from 4.84% to 3.87% since the mentioned date.
Market enthusiasm is palpable across the board, as evidenced by the small-cap Russell 2000 index gearing up for what could be its most remarkable December to date, outperforming the S&P 500 by a margin unseen in nearly 25 years.
Investor optimism is anchored in the Federal Reserve’s perceived success in taming high inflation through its strategic tightening of monetary policy, implemented back in March 2022.
Forecasts from the Fed suggest a potential reduction in the federal-funds rate, hinting at three anticipated cuts in 2024 that could potentially bring down the current target range of 5.25% to 5.50%.
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However, looking ahead, market forecasts diverge from prevailing sentiments. For consistent contributors to retirement accounts via index funds, a broad market downturn might not trigger concern.
Instead, reduced market prices could align favorably with continuous contributions, presenting potential buying opportunities during market contractions.