In This Article:
Wall Street had a volatile start to 2025 after major indexes retreated from their earlier highs in the final weeks of December. Concerns have grown lately that the Federal Reserve could likely slow its pace of rate cuts as inflation is still high.
The renewed fears come after a stellar 2024 for stocks as indexes hit all-time highs. However, fewer rate cuts could weigh on consumer spending as borrowing costs will remain high, which could keep markets volatile for longer.
Given this situation, it would be safe to invest in large-cap value funds. We suggest three large-cap value funds, namely, Northern Income Equity NOIEX, Federated Hermes MDT Large Cap Value Svc FSTKX and T. Rowe Price Value TRVLX.
Fears of Fewer Rate Cuts Grow
The minutes of the Federal Reserve’s December policy meeting released earlier this week show that most committee members believed the risk of rising inflation in the near term had increased. This came as fresh data showed an uptick in inflation for November.
The consumer price index (CPI) increased by 0.3% in November, marking its largest rise since April 2024, after four months of 0.2% gains. On a year-over-year basis, CPI grew 2.7%. Core CPI, which excludes the volatile food and energy prices, saw a 0.3% rise month-over-month in November and a 3.3% increase compared to the same month last year.
The jump in inflation saw the post-election rally coming to a halt in the final weeks of December. Markets have stayed volatile since, with all three major indexes closing the first week of the year in negative territory.
Fears grew further this week following the release of the minutes of the Fed’s last policy meeting as investors believe that there could be fewer rate cuts in 2025. Since September, the Federal Reserve has reduced interest rates by 100 basis points, bringing its benchmark rate to the range of 4.25-4.5%. However, the Fed also indicated that it expects to make only two rate cuts at most this year. These ongoing concerns could contribute to prolonged market instability.
3 Best Choices
We've identified three large-cap value mutual funds that have demonstrated impressive annualized returns over 3-year and 5-year periods. These funds also hold a Zacks Mutual Fund Rank of #1 (Strong Buy), require an initial investment of no more than $5,000 and have a low expense ratio.
The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).