Investors Poured $12 Billion Into This 'Risky' Asset Last Week. Should You Invest, Too?

When it comes to investing, everyone wants to know where the smart money is going and what they should be investing in. According to Bank of America strategists, investors poured $11.6 billion into the stock market last week, a sign that traders are becoming more bullish on stocks as inflation continues to cool. This has prompted many investors to wonder if they should follow suit and invest in this riskier asset, too.

Inflation drops 12 consecutive months

The Federal Reserve has taken aggressive measures to combat the highest inflation rates the country has seen in 40 years. Since the Fed began raising rates last March, it has raised rates by 5.25% to 5.50%, making these hikes the fastest cycle in history and the highest in 22 years.

Inflation peaked in the summer of 2022 at 9.1%, and after 12 consecutive months of price decline, inflation dropped to 3% in June, the lowest seen in over two years. While inflation still remains a concern, the recent slowdown in inflation gives hope that the economy will stabilize in the coming months.

Market expects pullback on rate hikes

With inflation cooling off, investors and market analysts alike are anticipating that the Federal Reserve will soon begin to ease up on its cycle of rate hikes. As a result, investors are feeling more confident in taking on higher-risk investments.

They are eagerly pouring cash into the stock market as inflation appears to be in full retreat, according to Bank of America. As a result, last week the S&P 500 rallied over 100 points, an increase of 2%.

The latest data on cooler inflation is good news for equities, and could mean that the US economy may be able to avoid a recession. While the Federal Reserve wants to bring inflation down, it also needs to ensure that this doesn't harm economic growth or lead to high rates of unemployment. The Fed believes it can achieve a so-called "soft landing," in which the Fed is able to meet the target of 2% inflation without spurring a recession.

"A long way to go"

The gradual decrease in inflation over the past few months has been positive news for both American consumers and businesses. However, the Fed has stated that "inflation is still elevated," and it is still closely monitoring any potential risks.

Fed Chair Jerome Powell stated that there still is a possibility of raising interest rates at the next meeting (in September) if the economy shows signs of improvement and continues to push up prices. According to Powell, reaching the Fed’s target of 2% still requires significant progress and there's "a long way to go."

Factors to consider before investing

Before you jump into stock market investing, there are a few things you should consider. First, make sure you have a clear financial plan and investment goals. You should have a clear understanding of how much you're willing to invest, how long you're willing to hold the investment, and your risk tolerance.

Next, ensure you have a diversified portfolio that balances investments in different sectors and industries. This will help mitigate your risk exposure. Lastly, make sure you do your research and invest in companies that have a strong financial foundation and growth potential.

Although the market appears to be turning around, investing always involves risk. Economic and political disruptions can affect the stock market, which can lead to significant losses for investors. It's important to have a long-term investment timeline and avoid making impulsive decisions based on short-term trends.

The recent influx of investment in the stock market suggests that traders are optimistic about the future prospects of risky assets as inflation cools. While investing in the stock market can be risky, it can also have potential rewards if done correctly. Before you invest in the stock market, consult a professional, have a clear financial plan and investment goals, find ways to diversify your portfolio, and stay disciplined. Ultimately, each individual's investment strategy will depend on their personal financial goals, risk tolerance, and investment timeline.