This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The big news out of the financial sector over the weekend concerned investment bank Credit Suisse (NYSE: CS) and its financial health. Shares of the bank dipped to a new all-time low Monday morning before rebounding slightly, but many investors and analysts are deeply concerned about the Switzerland-based bank's future.

Here's a rundown of what happened, why investors are so concerned, and whether Credit Suisse is a bargain stock to consider for your portfolio.

Is Credit Suisse in trouble?

The short answer is that we don't know for sure. The Financial Times reported that Credit Suisse was in discussions with investors to reassure them of the bank's financial health. It was also reported that CEO Ulrich Korner sent a memo indicating that the bank is looking to raise capital. And without getting too deep into a discussion of derivatives, the bank's credit default swaps -- basically insurance against the bank defaulting on its debt -- saw costs rise sharply, essentially indicating that investor confidence in the bank's financial health was eroding.  

Now, the bank's management denies any major problems. In a note to CNBC, Korner spoke of the bank's strong capital base and liquidity position. And separately, he denied reports that the bank needs to raise capital but did confirm that Credit Suisse is completing a strategic review. In fact, in his memo to staff, Korner said the bank was at a "critical moment" and would present its strategy update plans on Oct. 27. Analysts have speculated that the bank could sell some of its assets, and could potentially exit some of its markets, including the United States.        

Why is the market worried?

The 2007-2009 financial crisis still leaps to investors' minds when markets get turbulent. And the collapse of a major financial institution would trigger a wave of panic in the markets that another crisis is beginning.

Credit Suisse is a massive investment bank, with about $1.5 trillion under management and operations all over the world. To put this into perspective, Lehman Brothers -- whose 2008 bankruptcy was a key event in the financial crisis -- had less than $250 billion in assets under management (AUM) at the time of its collapse.

Still, analysts generally don't see a worst-case scenario playing out here. A report by Citigroup analysts called the situation "night and day from 2007." JPMorgan Chase called Credit Suisse's capital position "healthy." 

Is Credit Suisse stock cheap now?

Credit Suisse is down by roughly 60% over the past year, trading at an all-time low. Shares of the investment bank trade for just 21% of book value (that's not a typo). So, it may seem like a good time to buy the stock at a bargain.

However, keep in mind that there are significant risks to doing so. As mentioned, some experts think there's a serious chance that Credit Suisse could collapse. And even though many think there's a very low probability of that happening, there are plenty of bank stocks trading cheaply that aren't having financial problems. For example, if you're looking for an investment bank, Goldman Sachs is trading for less than its book value for the first time since the initial 2020 COVID-19 crash and is in solid financial shape.

There are other examples for sure, but the point is that it's important to be able to distinguish between stocks that are cheap and stocks that are cheap for a reason. While a full collapse seems unlikely, Credit Suisse is definitely in the latter category.  

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Credit Suisse has the market on edge. What should you do? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

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• The superannuation myth that could cost you $100,000 before you retire
• Why it's time to look past the "SaaSpocolypse" and target Aussie tech
• 3 ASX dividend shares I'd hold through anything

Matthew Frankel, CFP® has positions in Goldman Sachs. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Citigroup is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs and JPMorgan Chase. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The stock market just wrapped up its worst first half in more than 50 years. The benchmark S&P 500 index is down 21% so far in 2022, and the tech-heavy Nasdaq Composite index is down by 30%. And many of the most widely held stocks in the market are down by 50% or more this year, especially those of fast-growing businesses.

Amid all the volatility, every investor has the same question: When will things start to get better?

While none of us have a crystal ball that can accurately predict the future, the answer to that question will be directly connected to the issues that have caused the market's decline so far this year. Let's lay those out, and consider the potential catalysts that could cause it to rebound -- or move even lower -- in the second half.

Why has the stock market fallen so steeply this year?

In a nutshell, we've had a perfect storm of negative catalysts. Let's run through some of the biggest.

Inflation: After many central bankers and economists repeatedly assured us that any surges in inflation caused by the pandemic's secondary effects would be "transitory," we've all come to realize that's not the case. U.S. inflation is at its highest level since the early 1980s, and the Federal Reserve is aggressively trying to get it back under control. This has led to fears that its fiscal tightening will trigger a recession. 

Rising interest rates: In its inflation-fighting efforts, the Fed has raised benchmark interest rates significantly from their pandemic lows of near zero, and this has driven consumer interest rates upward too. For example, the average rate for a new 30-year mortgage has increased from about 3% at the beginning of the year to just under 6% now. So, not only is inflation making things cost more, but borrowing has become far more expensive.

Declining consumer confidence: When consumers don't feel confident about the economy, they spend less money. That's bad for business. And according to the latest report from the Conference Board, consumer confidence is at its lowest level in almost 10 years.

War: Growth stocks had been under pressure since late 2021, but there's a solid case to be made that the event that triggered the broad market decline was when Russia invaded Ukraine. The short explanation is that markets hate uncertainty, and wars in economically vital regions bring a lot of uncertainty to the table. 

There are other factors in play as well, such as ongoing supply chain disruptions, labor shortages, and wage pressures on businesses, just to name a few.

Catalysts that could move the market in the second half

It's important to realize the stock market is largely a forward-looking indicator. In other words, the price of stocks doesn't necessarily reflect the current state of things, but what the market expects the state of things will be. And this is true for individual stocks as well.

Right now, investors expect inflation to run hot for the foreseeable future. The market expects that the Fed will raise the federal funds rate by another 175 basis points or more by the end of this year alone. There's no end in sight for the war in Ukraine. The market expects consumer spending to decline. And the market is starting to expect a recession to begin in the near future.

So if any of these things turn out better than the market expects, it could lead to a rebound in the second half of 2022. For example, if the data clearly starts to show inflation has peaked and is beginning to decline, it could trigger a market rally. If the Ukraine conflict gets resolved, investors could breathe a sigh of relief. You get the idea.

It's important to recognize that the opposite is true as well. For example, if U.S. inflation -- currently in the 8% to 9% range year over year -- spikes into the double-digit percentages, it could result in another downward move for the broad market.

Keep your eye on the long term

The bottom line is that while we know what catalysts would be generally positive or negative for the stock market, we have no idea if and when they will actually happen. So there's simply no way to predict with any degree of accuracy what the stock market will do for the rest of the year.

This is why we are so steadfast in our advice that long-term investing is the smart way to go. The stock market is down 21% so far this year and it could certainly fall even further if things don't go well in the near term. But historically speaking, investing during the periods that follow market drops of 20% or more has worked out very well from a long-term perspective. I have absolutely no idea what the stock market will do over the next six months. But I have every confidence that in 20 years, it will be much higher than it is today. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Down 21%, is the stock market ready to recover in the back half of 2022? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• The Warren Buffett rule I keep coming back to with ASX shares
• Down 50%, why I'd invest $20,000 into CSL shares
• The superannuation myth that could cost you $100,000 before you retire
• Why it's time to look past the "SaaSpocolypse" and target Aussie tech
• 3 ASX dividend shares I'd hold through anything

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

As was widely anticipated, the Federal Open Market Committee (FOMC), which is the policy-making arm of the Federal Reserve, announced a 50-basis-point hike to the federal funds rate. Since a basis point is equal to 0.01 percentage points, this means that the benchmark rate has risen from a target range of 0.25%-0.50% to 0.75%-1.00%.

If you didn't fully understand that first paragraph or what it means to you, don't worry. Here's a rundown of what this rate hike means in simple terms, what it could mean for investors, and what to expect going forward.

Here's what the Fed's rate hike means

The Federal Open Market Committee has two main functions -- to maximize employment and control inflation. And with the unemployment rate sitting at a low 3.6%, the clear goal of this move was to get inflation in check -- after all, inflation is running at its highest rate in four decades, and many consumers are feeling the pain.

Without getting too deep into the weeds on an economic discussion, the general idea is that higher interest rates help slow down economic activity. However, raising interest rates too fast can result in a major shock to the economy, so the Fed tends to raise rates incrementally (like it did today) to gradually slow down inflation closer to the Fed's 2% target.

For consumers, the important thing to know is that some interest rates that affect Americans are directly tied to the federal funds rate. For example, if you have a credit card, you can bet that its standard interest rate for purchases will rise by 0.50% in response to the Fed's latest move. Adjustable-rate mortgages and HELOCs are other types of interest rates that typically move according to the benchmark.

On the other hand, fixed-rate mortgage interest rates and auto loan rates, among others, are not directly tied to the Fed's moves. After all, the average 30-year mortgage rate has already increased from 3.29% to 5.55% since the end of 2021, despite the FOMC only raising rates by 0.25% in that time. And for savers, the interest rates you get paid on savings deposits aren't tied to benchmark rates either.

What could it mean to investors?

When it comes to the rate hike itself, the impact on your investments is likely to be minimal. This was a widely expected rate hike and was already priced into the market. Sure, if a company relies heavily on borrowed money that happens to be tied to the federal funds rate (like a credit line), it could have a bit of an impact on interest expense, but there's a reason the stock market barely budged after the rate hike was announced -- the market saw it coming.

What to expect going forward

Here's the most important takeaway for investors. It's not what the Fed just did that moves markets. It's what the Fed is expected to do next.

According to the CME Group's (NYSE: CME) FedWatch tool that analyzes futures markets, the current expectation is for another 75-basis-point rate hike when the FOMC meets in late June. By the December meeting, the current median expectation is for a federal funds rate of 3%-3.25%. And in a year from now, at next May's meeting, the most likely scenario is currently seen as a target range of 3.5%-3.75%. If these expectations change significantly in the months leading up to future meetings, it could certainly have a big impact on markets.

It's also important to pay attention to commentary by Fed officials, particularly FOMC Chair Jerome Powell. His speeches have the ability to quickly alter the market's expectations about future rate hikes.

The bottom line is that this rate hike was widely expected, but there's a wide range of potential outcomes going forward. It depends on how aggressive the FOMC wants to get, and how quickly inflation starts to cool off in response to rising interest rates.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post The Federal Reserve just raised interest rates — what does it mean to investors? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• The Warren Buffett rule I keep coming back to with ASX shares
• Down 50%, why I'd invest $20,000 into CSL shares
• The superannuation myth that could cost you $100,000 before you retire
• Why it's time to look past the "SaaSpocolypse" and target Aussie tech
• 3 ASX dividend shares I'd hold through anything

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Can you put your money in nothing but boring S&P 500 index funds and grow your retirement nest egg to seven figures? The short answer is yes.

While the performance of the S&P 500 can vary dramatically from year to year, it is surprisingly consistent over multidecade periods. Depending on the exact period you're looking at, the total return (including dividends) of the S&P 500 has historically averaged 9%-10% per year.

For our purposes, we'll use the middle of this range -- 9.5% -- to keep things simple. If you're relatively young and buy a low-cost S&P 500 index fund like the Vanguard S&P 500 ETF (NYSEMKT: VOO), it's reasonable to expect this type of return over time.

While a gain of 9.5% in a single year might not sound thrilling, consider this: If you were to invest $65,700 in an S&P 500 index fund and averaged a 9.5% return each year, you'd have a million-dollar investment value in 30 years.

How much should you invest to reach seven figures?

Obviously, not everybody reading this has more than $65,000 just sitting around to put into an S&P 500 index fund.

With that in mind, here's how much you should plan to invest monthly in S&P 500 index funds to retire a millionaire at age 65. If you're relatively young, it might be less than you think.

Data source: Author's own calculations, using annual 9.5% compounding. Rounded to the nearest dollar.

If $1 million isn't your goal, you can adjust these higher or lower. For example, if your goal is a $2 million nest egg, simply double the monthly savings account.

Two big caveats

No investment that can produce wealth like this is without risk and although the S&P 500 isn't exactly a "high-risk" investment on a long-term basis, there are a couple of things to keep in mind.

For starters, in a real-world portfolio, you probably wouldn't just invest in an S&P 500 index fund until you retire. As you get closer to retirement, your tolerance for big swings in your portfolio declines. Over the past 50 years, the S&P 500 has gained or lost as much as 37% in a single year -- if you're 65, do you really want your savings to fluctuate that much?

So, as you get closer to retirement, you'll probably want to gradually shift some of your savings into lower-volatility (but lower-return) investments like bonds and CDs.

It's also important to mention inflation, especially because it's running relatively high right now. In short, $1 million in 30 years isn't going to be the same thing as $1 million today.

However, the point is that it is certainly possible to retire a millionaire with S&P 500 index funds if you can stomach the volatility. If not, you might want to err on the side of caution and plan to invest a little extra each month to compensate for this gradual asset shift over time.

Warren Buffett's favorite investment

Billionaire investor Warren Buffett is widely considered one of the best stock-pickers of all time but has said that low-cost index fund investing -- and an S&P 500 index fund in particular -- is the best way to invest for the majority of Americans. In fact, Buffett has even advised his own wife to invest her inheritance this way after he's gone.

In a nutshell, while we wholeheartedly believe it's possible to beat the market with individual stocks, the reality is that many people don't have the time, knowledge, or desire to research and select stocks properly. And that's OK. As Buffett says, "It is not necessary to do extraordinary things to get extraordinary results."

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Are index funds all you need to retire a millionaire? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• The Warren Buffett rule I keep coming back to with ASX shares
• Down 50%, why I'd invest $20,000 into CSL shares
• The superannuation myth that could cost you $100,000 before you retire
• Why it's time to look past the "SaaSpocolypse" and target Aussie tech
• 3 ASX dividend shares I'd hold through anything

Matthew Frankel, CFP® has no position in any of the stocks mentioned. The Motley Fool owns and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened

The stock market is having a fairly strong day on Thursday after a multiday slump caused by renewed COVID-19 fears. At 10:20 a.m. ET, the S&P 500 index was higher by about 0.6%. However, not all stocks were having a good day. Fintech giant Square (NYSE: SQ) was a major underperformer, its shares having declined by about 3.5%.

So what

There are two likely explanations for Square's underperformance. First, it's worth noting that the tech sector is one of the worst performers of the day. The tech-heavy Nasdaq is hovering around the flatline. So some of the underperformance can be attributed to sector weakness.

Second, and most significantly, Square announced on Wednesday afternoon that it is changing the company's name to Block, effective Dec. 10. Once the change happens, the ticker symbol (SQ) will not change, and the seller business will retain the Square brand name.

Why is Square changing its name? The short answer is that it's because Square's offerings today are very different from the small business financial solutions on which the business was founded. Cash App and the TIDAL music platform are two examples. Block is intended to represent Square's vision for the future -- the company represents its different businesses as "building blocks," and is also making a reference to blockchain, which is a major focus of co-founder and CEO Jack Dorsey.

It's also worth noting that Square Crypto is changing its name to Spiral at the same time, a move designed to give the business its own unique identity within the company's ecosystem.

Now what

The name change comes just days after Dorsey decided to step down from Twitter (NYSE: TWTR) and focus exclusively on Square. And based on today's move, it doesn't seem investors know quite what to make of it. It remains to be seen how much Square's business focus will shift toward blockchain and other new efforts, but for now this appears to simply be a name change, like the one Google made when it became Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL). 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Here's why Square is down today while the stock market is rising appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• The Warren Buffett rule I keep coming back to with ASX shares
• Down 50%, why I'd invest $20,000 into CSL shares
• The superannuation myth that could cost you $100,000 before you retire
• Why it's time to look past the "SaaSpocolypse" and target Aussie tech
• 3 ASX dividend shares I'd hold through anything

Matthew Frankel, CFP® owns shares of Square. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Alphabet (A shares) and Square. The Motley Fool Australia has recommended Alphabet (A shares) and Alphabet (C shares). The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.