How Global Events Affect Your Portfolio: A Beginner’s Guide
If you are new to investing, you might assume your portfolio – especially if it is packed with Canadian or American stocks—is safely tucked away from global drama. But the truth is, events like geopolitical tensions or economic slowdowns often send ripples through the markets, and your investments can feel the effects. Let us take a look into how these international factors influence your portfolio and how you can navigate them.
What Falling Interest Rates Mean for Your Portfolio
Last week, we explored how rising interest rates can challenge investors. This week, let us flip the script and talk about something that could actually work in your favour—falling rates. When interest rates drop, it is not just borrowers who feel the relief. If you know where to look, your stock portfolio can benefit too.
Why Do Central Banks Lower Interest Rates?
Central banks, like the Bank of Canada (BoC) or the US Federal Reserve (Fed), lower interest rates to stimulate a sluggish economy. Cheaper borrowing encourages spending and investment, helping businesses expand, creating jobs, and keeping inflation in check. Think of it as their way of giving the economy a boost when growth hits a wall.
The Power of Dollar-Cost Averaging: A Beginner’s Best Friend
When markets get unpredictable, it is easy to feel unsure about when to invest. Should you wait for prices to drop further, or jump in now? One simple strategy that can remove some of the guesswork is Dollar-Cost Averaging (DCA).
Inflation and pricing
It was a relatively quiet week for the markets in terms of economic news. In the USA, investors focused on the mid-week release of the minutes from the Federal Reserve’s (Fed) last Federal Open Market Committee meeting and Fed Chair Jerome Powell’s speech at the Jackson Hole Economic Symposium, at the end of the week. These two events are crucial in indicating whether the Fed plans to lower the US benchmark rate at their September meeting.
In Canada, the biggest economic headline was the July Consumer Price Index (CPI) inflation report, which reveals whether inflation is rising or falling. Spoiler alert: it is still falling. 😊 But here is an important point—just because inflation is down does not mean prices are lower. It only means that the pace of price increases has slowed.
This past week, many of the big-name mega-cap technology companies (companies with market capitalization exceeding $200 billion which represents the total value of all outstanding shares) that have driven the indexes to record heights all year long lost favour with investors. In fact, much of this past week’s declines can be attributed to these same companies. This includes Alphabet (NASD: GOOGL), Amazon.com (NASD: AMZN), Apple (NASD: AAPL), Microsoft (NASD: MSFT) and Nvidia (NASD: NVDA).
As we pass the halfway mark of the year, it is encouraging to know that the stock market typically performs better during the summer months, with July often cited as one of the strongest. Several compelling reasons contribute to this trend. Let’s take a look.