THE WEEK ON WALL STREET
Growing concerns about further interest rate hikes, prompted by fresh economic data, reversed early-week gains and left stocks mixed for the week. The Dow Jones Industrial Average slipped 0.13%, while the S&P 500 fell 0.28%. The Nasdaq Composite index advanced 0.59% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, gained 0.52%.
FACT OF THE WEEK
Lt. Edward O’Hare takes off from the aircraft carrier Lexington in a raid against the Japanese position at Rabaul and minutes later becomes America’s first WWII flying ace.
In mid-February 1942, the Lexington sailed into the Coral Sea. Rabaul, a town at the very tip of New Britain, one of the islands that comprised the Bismarck Archipelago, had been invaded in January by the Japanese and transformed into a stronghold–in fact, one huge airbase. The Japanese were now in prime striking position for the Solomon Islands, next on the agenda for expanding their ever-growing Pacific empire. The Lexington‘s mission was to destabilize the Japanese position on Rabaul with a bombing raid.
Aboard the Lexington was U.S. Navy fighter pilot Lt. Edward O’Hare, attached to Fighting Squadron 3 when the United States entered the war. As the Lexington left Bougainville, the largest of the Solomon Islands in the South Pacific (still free from Japanese control), for Rabaul, ship radar picked up Japanese bombers headed straight for the carrier. O’Hare and his team went into action, piloting F4F Wildcats. In a mere four minutes, O’Hare shot down five Japanese G4M1 Betty bombers–bringing a swift end to the Japanese attack and earning O’Hare the designation “ace” (given to any pilot with five or more downed enemy planes to his credit).
Although the Lexington blew back the Japanese bombers, the element of surprise was gone, and the attempt to raid Rabaul was aborted for the time being. O’Hare was awarded the Medal of Honor for his bravery–and excellent aim. In 1949, Chicago officials named the O'Hare International Airport after him.
MARKET MINUTE
Rate Concerns Weigh On Stocks
Stocks opened last week higher on investor hopes that a continued cooling in inflation might support a more dovish Fed. A higher-than-expected rise in the Consumer Price Index (CPI) and strong retail sales in January initially did little to dent that enthusiasm, as stocks posted solid gains through Wednesday’s close. But that optimism faded on Thursday as a surprising rise in producer prices and another decline in initial jobless claims triggered worries that the Fed would stay the course for longer. Comments from two Fed officials supporting a more aggressive rate hike stance added to the unease, erasing much of the week’s gains. Stocks ended mixed on Friday, capping a choppy week.
Inflation Moderation Pauses
Consumer prices climbed 0.5% in January, fueled by rising shelter costs and energy prices. The increase in the CPI was higher than the 0.1% rise in December and slightly above the consensus estimates of 0.4%. The year-over-year inflation number (6.4%) came in lower than December’s 12-month rise of 6.5%, making it the seventh consecutive month of declining year-over-year inflation. January’s product price report showed a surprise 0.7% increase, higher than the 0.4% rise expected by economists and the biggest jump since June. Year-over-year, producer prices rose 6.0%, a slight improvement from December’s number.
FINANCIAL STRATEGY OF THE WEEK
Saving Early & Letting Time Work For You
As a young investor, you have a powerful ally on your side: time. When you start investing in your twenties or thirties for retirement, you can put it to work for you.
The power of compounding. Many people underestimate it, so it is worth illustrating. Let's take a look using a hypothetical 5% rate of return.
How does it work? A simplified example goes like this: Let's take a look using a hypothetical 5% rate of return on a principal of $100. After a year, you earn 5% interest, or $5. Another year, another 5%, which adds $5.25 this time. In the third year, your 5% interest earned amounts to $5.51, bringing your balance to $115.76. The more money you deposit, the greater that 5% returns. Let’s look at another hypothetical example. If you were to start with a $1,000 principal in an account that earns 5% interest per year, and contribute $1,000 a year to the account, you would end up with a total of $7,078.20 after five years. That’s a total of $1,078.20 earned in compound interest from $6,000 in contributions. That compounding continues, even if you stop making deposits. All you really need to do is let that money stay put.1
The earlier you start, the greater the compounding potential. If you’re investing for retirement in your twenties, you may gain an advantage over someone who waits to invest until his or her thirties.
Even if you start early & then stop, you may be in a better position than those who begin later. What if you contribute $5,000 to a retirement account yearly starting at age 25 and then stop at age 35 – with no new money going into the account for the next 30 years. That is hardly ideal. Yet, should it happen, you still might come out ahead of someone who begins saving for retirement later.
As always, we’re here to answer any questions or help with anything you or your family needs.