Stock prices rose in trading Monday as investors price in a highly anticipated interest-rate reduction from the Fed. Pricing in refers to the investing practice of buying and selling based on expected events that have not happened yet.
The large-cap S&P 500 index rose 0.2% while the technology-focused Nasdaq Composite rose 0.5%. The Dow Jones Industrial Average, focused on blue-chip stocks, rose 0.1%.
Lower interest rates are good for stocks. Profits can get a boost as variable rate debt and new borrowing becomes less expensive. However, if the Fed does lower the federal funds rate by 0.25 points, stock prices may not change much—because traders have already made the adjustment. A larger-than-expected rate reduction would prompt a rise in stock prices.
Stock futures are mixed ahead of the market open on Tuesday relative to Monday. Futures tracking the S&P 500 rose 0.2%. Contracts tied to the technology-focused Nasdaq 100 fell 3.7%. And Dow Jones futures edged down slightly.
Investing & Economic News To Watch Today
Important events scheduled for September 16 include:
- U.S. retail sales report. The retail sales report is released monthly by the U.S. Census Bureau. The August report is expected to show slightly slower retail sales growth at 0.3% vs. 0.5% in the prior month.
- Import price index. The U.S. Bureau of Labor Statistics reports its import and export price indexes monthly. These measures do not include tariffs. The August report is expected to show a decline in import prices by 0.2% vs. a 0.4% gain in the prior month.
- Home builder confidence index. The home builder confidence index gauges home builder attitudes on the state of the market for newly built single-family homes. The index has shown “relatively low” confidence since May. High mortgage rates and slow housing sales are likely contributors. Analysts expect an index reading of 33 in September, up slightly from 32 in August.
Today’s Trading Lesson
Are you investing or trading? You can pursue profits in the stock market by investing or trading. The two approaches require different mentalities and strategies. If you haven’t identified which road you’re taking, it’s easy to drift off course and make counterproductive decisions.
Let’s break down the differences. Investing is the long-term effort to build wealth gradually. Trading capitalizes on short-term volatility to create quick gains. The approaches have separate timelines, risk levels, risk management techniques, research processes and broker requirements.
- Timelines. Investors expect profits in years or decades. Generally, the timeline for investors is five years or more. Traders seek profits in days or weeks. They often buy shares with the goal of selling them as quickly as possible.
- Risk levels. Investing can be lower risk, particularly when the investor has time to wait for the stock to appreciate. Trading is typically higher risk, because traders need to sell quickly so they can reinvest the capital in something else. If a stock price goes in the wrong direction, traders must take a loss or wait for a reversal. Many traders also prefer to buy on margin, which involves borrowing money to invest. Margin-buying amplifies what you can earn and what you can lose.
- Risk management techniques. Investors mitigate risk by diversifying into different asset types and selecting stocks with long-term potential. Traders establish firm processes on when to buy and when to sell—supported with limit orders—to minimize emotional decision-making. A limit order specifies a price for the trade.
- Research processes. Investors focus on business fundamentals like cash flow trends, competitive advantages, leadership team experience and growth strategies. Traders prioritize patterns, trends and moving averages to predict how a stock price may change.
- Broker requirements. Long-term investors can work within a 401(k), IRA or any self-directed brokerage account. Traders favor brokers with fast trade execution and low trading fees per transaction.
With the right approach, mentality and time commitment, you can make money investing or trading. However, investing is far more forgiving than trading. Investing is far less reliant on good timing than trading is. It’s easier to win when you pick a good company and can wait 10 or 20 years for the reward.