Fed Rate Hike Roils Markets … Again
The markets fell following another 75-basis point rate hike by the feds. Erin Kennedy questions Tom O’Connell about what is causing this pessimism and downturn of the stock market. After two years of double-digit inflation, everyone is ready for relief, but investors keep watching their portfolios decline in value instead.
What Is Causing the Pessimism?
There are many reasons the stock market is trending downward, and the outlook is pessimistic at times. Everything costs more thanks to inflation. Your wages are not keeping up with the rise in cost. Even if employers provide a regular pay raise every year or two, the pay raise is not enough to make up for the increase in the cost of living. As an example, just the price of beef is up by 300%.
The housing market is contracting again as the interest rates are rising. There’s an oil crisis, which the war in Ukraine is contributing to. There are political and economic concerns over China. The USA is still experiencing supply chain issues. Overall, there are a lot of legitimate global and local reasons for the pessimism the market is exhibiting.
What Do Rate Hikes Do?
Rate hikes by the fed are a tool that’s used to cool inflation. These rate hikes have not worked as expected. Of course, now people are wondering if there will be another interest rate hike. Nobody knows yet. It’s all speculation. However, Tom O’Connell believes that even if we see another rate hike, it will probably be smaller than the 75-basis point increase.
Which Smart Moves Should Investors Consider Now?
It’s really important not to panic despite the downturn in the market. There are people who are too afraid to look at their statements because their portfolios have taken a massive hit. And if you have looked at your statement, you might have seen a 25 to 30% decrease in asset value. But this is the time to take deep breaths and just keep calm.
Many people have a tendency to panic and get out of the market when it hits this kind of low, but this is a grave mistake. If you get out, you’ll miss the recovery period, which will further set you back on your goals. In fact, if you have time before you need to retire, this is a time where you want to maintain your contributions or even buy more assets and take advantage of lower prices.
Consider Income Creation over Asset Value
One important consideration for investors is to think about generating income instead of focusing on the value of your assets. The goal is to make sure you have a stable income during retirement that allows you to cover your bills, including the mortgage and groceries. You want a fixed income to provide for you without having to worry about what the markets are doing.
Even though the market outlook is pessimistic at the moment, you still need to prioritize your retirement planning. If you need advice about your investments during the downturn of the market or are curious about lifetime income planning, speak with our financial professionals today.