By Brad Singer
It ‘s been a roller coaster market so far this year in stocks and bonds. You’ve probably noticed your 401k’s and other investment accounts taking a serious hit this year. What’s going on and what can you expect for the remainder of 2022 and beyond? Furthermore, what should you be doing about it?
Financial Market Turmoil
What’s behind all this financial market turmoil? First and the biggest culprit has been the sudden rise in consumer prices. Seemingly, everything has gone up in price from gas and groceries to rents and used cars. The Covid-19 and associated government subsidies trying to contain the pandemic also had the unintended severe side of effect of pumping too much money into the hands of those who probably didn’t need as much help, as opposed those who really suffered from not being able to work, or were in shut down mode (restaurants, etc.).
The Federal Reserve, the quasi-government body that controls interest rates, reacted far too late in pulling back on easing money supply and credit available to the public and Wall Street investors. This matters because we had not only fiscal spending in trillions, but also monetary money printing in overdrive at the same time, causing a surge in consumer demand at a time when the supply was constrained by the pandemic: a double whammy effect quite unprecedented in modern times. Higher demand plus shorter supply means prices go up. And boy, they went up like a rocket.
The sudden shift in market expectations for inflation and interest rates caused significant uncertainty in the minds of investors. Uncertainty in the future causes people to sell now and ask questions later. Market interest rates rose rapidly way ahead of what the Federal Reserve (The Fed) had in mind for the economy. Markets dived on expectations that The Fed would continue tightening credit to control inflation. Could these actions by the Fed cause a recession? Some see a possible recession on the horizon, some not. The odds have probably increased towards recession rather than decreased.
What does this mean for you?
If you are wondering what to do with your money in these uncertain times, you’re not alone. Many mistakes are made by those who can’t stomach to watch their account values go down 15% or 20% or more in a few short months.
