What Will The Fed Do?

1. Hottest News This Week

CPI and FOMC

📣 Huge Macro Week

While the Bank of Canada and the European Central Bank cut rates last week, the U.S. Federal Reserve is expected to keep rates steady at 5.25%-5.5%. On Wednesday, the Fed will announce its decision and release its economic projections, including the "dot plot" of rate forecasts.

Wednesday will also bring the May Consumer Price Index (CPI) report. April's data showed inflation dropping to 3.4%, giving hope that prices might be stabilizing. The Fed needs more evidence of cooling prices before cutting rates.

Thursday will feature the Producer Price Index (PPI) for wholesale inflation, and Friday will bring consumer sentiment data on spending and inflation expectations.

📣 Apple Event

Apple is set to highlight new AI capabilities at its Worldwide Developers Conference starting Monday.

This year, Apple is expected to unveil a new operating system and AI features for iMessage and Safari. They may also address reports of partnerships with OpenAI, backed by Microsoft, and Google.

2. Matt Allen’s Corner

The Psychology of Investing

Investing isn’t just about numbers, charts, and financial statements. It's also deeply influenced by psychology. Our emotions and biases often shape our financial decisions in ways we might not even realize. Let’s dive into the fascinating world of behavioral finance and explore how understanding our psychological tendencies can make us better investors.

The Tale of Two Investors

Imagine two investors: Sarah and Mark. Sarah meticulously analyzes her investments, ensuring she makes decisions based on solid data and long-term prospects. Mark, on the other hand, often lets his emotions dictate his actions. When the market dips, he panics and sells his stocks. When prices soar, he gets excited and buys more, fearing he's missing out. Over time, Sarah's portfolio grows steadily, while Mark's fluctuates wildly, often yielding lower returns.

So, what’s the difference? Sarah understands and manages her behavioral biases, while Mark falls victim to them.

Common Behavioral Biases in Investing

1. Loss Aversion: This is the tendency to prefer avoiding losses over acquiring equivalent gains. Research shows that losses are felt about twice as strongly as gains. This can lead investors to hold onto losing stocks for too long, hoping to break even, rather than selling and reallocating their capital more effectively.

2. Overconfidence: Many investors overestimate their knowledge and ability to predict market movements. This can result in excessive trading, which not only incurs higher transaction costs but often leads to poorer returns.

3. Herd Mentality: The fear of missing out (FOMO) can drive investors to follow the crowd, buying high and selling low. When everyone else is buying a particular stock or asset, it’s tempting to jump on the bandwagon without considering whether it fits your investment strategy.

4. Anchoring: This bias occurs when investors rely too heavily on the first piece of information they encounter (the "anchor") when making decisions. For example, if a stock was previously priced at $100, investors might view a drop to $80 as a buying opportunity without reassessing the stock’s current fundamentals.

5. Confirmation Bias: This is the tendency to search for, interpret, and remember information that confirms our preconceptions. Investors might focus on news and data that support their existing beliefs about a stock while ignoring contrary evidence.

Strategies to Overcome Behavioral Biases

Understanding these biases is the first step to overcoming them. Here are some strategies to help you stay rational in your investing decisions:

• Set Clear Goals: Having specific, long-term investment goals can help you stay focused and avoid making impulsive decisions based on short-term market fluctuations.

• Stay Informed: Continuously educate yourself about the market and your investments. You should focus on financials, roadmap, and their financials. This can help counteract the effects of anchoring and confirmation bias.

• Use Checklists: Before making any investment decision, use a checklist to ensure you’ve considered all relevant factors and haven’t overlooked any critical information due to bias.

• Limit Trading: Reducing the frequency of trades can help you avoid the pitfalls of herd mentality and overconfidence. Adopt a long-term perspective and resist the urge to react to every market movement.

Conclusion

Investing is as much an art as it is a science, and understanding the psychological factors at play can give you an edge. By recognizing and managing your behavioral biases, you can make more rational decisions, avoid common pitfalls, and ultimately achieve better investment outcomes.

Cheers,

Matt Allen

3. Comin’ Up

EARNINGS AND ECONOMIC DATA

💰 Earnings:

Monday: N/A

Tuesday: Oracle, GameStop, Rubrik

Wednesday: Broadcom, Dave & Buster’s

Thursday: Autodesk, Adobe

Friday: N/A

📈 Major Economic Events:

Monday: N/A

Tuesday: NFIB

Wednesday: CPI, FOMC

Thursday: Initial Jobless Claims

Friday: Import price index

The author of this newsletter owns ETF’s (exchange traded funds) that may hold ownership interests in the companies discussed in this newsletter as of the published date of this newsletter.