The S&P 500 (aka the US stock market) is +4 percent (through February 20) in 2024 after rising +24 percent in 2023. Both are price-only returns so they don’t include dividends. Historically, an average year is about +10 percent including price appreciation (70% of total return) and dividends (30%). Going forward expect just a +1-2 percent bump from dividends. If you need to generate income, buy a short-term US Treasury bond exchange-traded fund (ETF) — I use the iShares Short Treasury Bond ETF (SHV) — and just clip its 5 percent coupon.

Peel back the onion and you find that since last fall there has been a tale of two markets. A mini bear and a mini bull. Stocks plunged and then soared and now they’re sagging again. What’s the catalyst for the trend in any direction? Spoiler alert. It has nothing to do with artificial intelligence (AI) or any other investment theme regardless of how compelling it may be. It’s all about the outlook for US interest rates. Simply, the price of a risky asset falls when rates rise and rises when rates fall. It’s discounted cash flow math from your finance class. I’m a stock picker. I don’t fancy myself as a macroeconomist, but the “macro,” or the big picture stuff including rates, is often all that matters when investing.

The Fed (our central bank the Federal Reserve Board) meets on March 19-20 to discuss where it’ll set the federal funds rate. Think of this as the baseline rate upon which other rates are built to lend folks money. “Tight” or “restrictive” monetary policy has been the Fed’s strategy since March 2022. Over that period, it raised rates eleven times to a range today of 5.25-5.50 percent. It was essentially zero when the Fed started increasing rates to slay the inflation beast. Now that inflation has subsided — how much it has is debated — investors are hankering for “loose” or “accommodative” monetary policy with lower rates. That should boost stock prices. For months, stocks have been rising and falling depending on the consensus view as to when the Fed will “pivot” and drop rates and bring investors relief.

Everyone knows I’m primarily a tech investor, so, no surprise, I applauded the recent addition of Amazon.com (AMZN) to the Dow Jones Industrial Average. It bounced out Walgreens (WBA). But hold the phone. I think the Dow is a lousy stock index so you should ignore it. Here’s why. First, it only has 30 stocks. That’s way too few to properly diversify. Second, it is tech light with only seven – and they’re not even today’s tech leaders — of the thirty names from this key economic sector. In contrast, the S&P 500 has, yep, 500 stocks, and 40% of that benchmark’s weight is allocated to tech. Welcome to the 21st century. Third, the Dow was created in 1896 when dinosaurs roamed the earth. I call it the Old Man’s (but I’m 61) index. Last, and this is particularly weird and inappropriate, the stocks in the Dow are weighted by their stock prices. For example, America’s top company according to the Dow, with a 9% weight in the index, is the insurer UnitedHealth (UNH). It’s not Amazon or Microsoft (MSFT). It’s an insurance firm that no one considers to be that important, much less the best business in the land. When I’m on TV, I dodge questions about the Dow. It’s useless in the 21st century.

So much for my rant about a stock index although I do this for fun while most of you debate USC vs. Clemson. If you want to follow me between Mercury articles, tune into “Tech Tune-Up with Paul Meeks” at 2 PM on Fridays on Benzinga’s — a financial news outlet — YouTube channel. Of course, anything on YouTube is there for perpetuity so you don’t have to catch it live. But come back here to the Mercury. The Fed will make its move (or not) on rates before my next essay is published. I’ll parse all the gory details for you.