- Equities have recently been ruffled by outflows amid AI bubble fears and Fed rate uncertainty. We discuss whether it calls for selling stock.
If you’re staring at your portfolio wondering if it’s time to close your positions amid this week’s market wobble, you’re not alone. As of this writing, the S&P 500’s dipped about 1.6% in the last session, closing near 6,780 after a tech-led sell-off. On the other hand, the Dow is doing pretty well and is still close to record highs around 48,000, equivalent to about 11% year-to-date. Nasdaq’s up 18%, but signaling volatility.
Blame it on fading hopes for a December Fed rate cut—odds now at a coin-flip 50% from 95% a month back, per Reuters and CME FedWatch futures—as hotter inflation data and solid jobs reports cool aggressive easing bets. It’s got investors twitchy, but is this the signal to sell?
Why You Shouldn’t Sell Now
Even though the market’s been shaky, it’s probably not a good idea to sell all your stocks. Morningstar says the market is only slightly overpriced by about 2%. And value stocks could be a good pick with value stocks looking especially attractive after growth’s strong run.
Corporate earnings in the third quarter were way better, with the S&P gaining 10.7%, which was above the consensus 7.9%. Sure, Tesla and Meta didn’t do great, but Nvidia is way up, and money is flowing into healthcare and industrial stocks, having gained about 2% this week and showing resilience. Fidelity’s Q4 update warns of high valuations, forward P/E at 22.7, above 10-year norms, but ties it to robust 11.6% earnings growth expected for 2025.
If you sell now you’d lock in gains from a 16% YTD rally but miss seasonal tailwinds. November averages 1.87% gains historically, according to Stock Trader’s Almanac.
Medium-Term Outlook
Looking to mid-2026, expect volatility but net positives. Ameriprise’s Q4 forecast sees S&P gains of 5-7%, driven by Fed cuts and cooling inflation to 2.1%. BlackRock highlights AI investments juicing GDP, offsetting tariff drags.
The key risk is still the Federal Reserve’s monetary policy. Data on inflation, specifically the Consumer Price Index (CPI) from the Bureau of Labor Statistics (BLS) and the preferred Personal Consumption Expenditures (PCE) index, will dictate if or when the Fed pivots to a sustained easing cycle.
Currently, many economists project slower but positive economic growth, perhaps a “soft landing.” Corporate earnings growth is expected to moderate If the Fed cuts rates sooner than expected, it could greatly help stocks. On the other hand, if inflation remains high, the Fed would have to keep its tight policy, which would keep the market unstable and borrowing costs high. That could result in a flatter market for a longer time.
Long-Term Outlook
Looking further out to 2027 and beyond, things appear brighter. Goldman Sachs’ outlook anticipates 14% earnings growth in 2026, boosted by increased productivity from technology and trade deals easing tensions from early 2025. S&P Global predicts growth below the usual rate but no recession, with policy changes stabilizing fiscal flows.
The market’s long-term success depends on how well the US economy does and how quickly tech keeps growing, especially in areas like AI, cloud computing, and automation. Over a 20-year period, the S&P 500 has virtually always delivered positive returns, proving the immense power of compounding.
Despite the signs of volatility, it is better to hold or buy dips. Strong Q3 earnings and seasonal gains support resilience. However, you can trim high-flyers like tech, but broad sell-off risks missing upside.
You should sell when a stock is needed for rebalancing your portfolio, when your personal financial goals change, or if a review of its SEC filings shows fundamental business deterioration.
Interest rate uncertainty remains the top risk. The Fed’s policy trajectory, driven by inflation reports from the BLS and BEA, dictates borrowing costs and overall corporate valuations.
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