Well, it didn’t take us very long after we put away the New Year’s hats and noisemakers to experience some heartburn from our New Year’s parties. The market has been on a pretty consistent decline down over the past few weeks, and I thought this week would be perfect to talk about what we can see in the markets and what we should react to (if we should be reacting at all). As I type this on a very cold Friday, the broad stock market (measured by the S&P 500) was down about 6.5% from the beginning of the year. The Dow Jones Industrial index is down less, around 4.5%, and the NASDAQ (which is very heavily weighted toward tech companies) entered correction territory at below 10%. Here is what I’m watching:
Our Friends at The Fed
In the last Federal Reserve meeting of the year, Fed Chair Jerome Powell took the “transitory” tag off of inflation in his remarks, officially signaling that the Fed believes the rising prices you are seeing at your gas pumps and grocery stores are not just the result of passing policy, but real inflation as demand rises and supply fails to meet it. The reality is that it is extremely tough to know exactly what is and isn’t “true” inflation, but the fact that you (the consumer) are paying more for things you need tells me that you likely believe inflation is real. When the Fed wants to control inflation, they usually do so by raising their base interest rate (the rate at which banks can borrow money). Powell indicated that he intends to do so several times during this year, which would mean the end of the Fed stimulating money into our economy artificially and starting to try to reverse it. It seems like the market is trying to digest this information and has some uncertainty to it. When interest rates start to rise, stocks like banks and oil companies tend to do better, while companies in the tech industry typically underperform. One thing to keep in mind: just because the Fed says they are going to do something, doesn’t mean they always follow through. If you remember as an investor back at Christmastime 2018, this same Fed chair indicated a rate increase which sent the markets into a fit, sending stocks down close to 20% from their highs! The next meeting, the Fed called for a cancellation of the rate increase, sending stocks right back up.
We Still Have a Virus
We are still living in the pandemic era, regardless of whether it is nearing its end stage or just another variant awaiting around the bend. The Omicron variant seems to be the most contagious version yet, but the death rate from this variant appears from the data to be much lower. The markets still seem to have concern for it, as lots of sick people at the same time start to affect the economy. Sick workers can’t produce, they can’t provide services, and this can disrupt things to a smaller degree. There are still lots of job openings and opportunities available and companies still seem to be having a hard time filling those roles. As Omicron begins to recede and the curve comes down, I’m watching to see if we get yet another variant, or if this starts to become more inline with what we’ve historically dealt with (the traditional flu season).
If there’s one thing that is sure to give the markets a panic attack, it is when outside events create unrest. And we appear to have no shortage of things that could give the markets pause. China is continually looking to expand its influence in the Pacific, and Taiwan now appears to be in its crosshairs. Kim Jong Un continues to fire missiles into the water to make a show of North Korea’s attempts to go nuclear. And now, it appears Putin intends to instigate conflict again over Ukraine. How these situations play out will have a direct impact on market performance in 2022, both in the U.S and globally.
Should I Stuff My Money Under My Mattress and Forget About It?
NO! The reality is that things like these are always going on in the markets. Your success in investing boils down to how your investments match up with your goals and time horizon. There are always reasons to worry, and a massive part of my job is to be able to listen to your concerns and invest your money in a way that reduces those concerns as much as I can. Keeping the long-term in focus when all of these short-term issues arise are hallmarks of successful wealth builders. The best ones find ways to make modifications to stay invested through rough patches. As always, if you have questions or concerns, reach out to me!
Thanks for taking the time to read the blog this week! I would love the opportunity to sit down and discuss how I can help you improve your financial picture and reach your goals. I specialize in creating focused, interactive plans for clients building wealth for retirement as well as managing those retirement plans to make sure my clients enjoy their retirement years to the fullest. I also work with a variety of other financial issues! If you would like to schedule a free consultation, please call the office at the number below, or click the link to schedule a virtual or in-person meeting (or phone call) by setting a time that works for you! I would love to hear from you! Enjoy the rest of your week!
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