Reaccelerating?

You’re driving down the interstate. You see a sign alerting construction ahead. Other drivers start slowing down. You slow down. They slow down further. You slow down a little more. You’re about to hit the actual construction zone and waiting for the total standstill.

But, then, you realize, as well as the other drivers, that construction isn’t supposed to start for another week. The road is wide open. You can resume driving your normal speed. That feeling of reacceleration is incredible. You get a rush of adrenaline. I’m feeling that rush just thinking about it.

That’s similar to the feeling the markets are experiencing at this moment. After a few months of lackluster job growth, we saw an upside surprise in the past month. The government’s monthly jobs report showed an increase of 254,000 in September. That was well above the consensus forecast. The unemployment rate fell to 4.1%. Remember, it was just two months ago, we were at 4.3% with the expectation it was heading higher. Throw in positive revisions to previous months and suddenly the labor market looks better than feared.

That’s similar to the feeling the markets are experiencing at this moment.

So, what does that mean for your money?

If you have variable rate loans, this means you’re probably not going to see significant improvements in the rates before year end. Variable rate debt like home equity lines of credit (HELOCs) peg off what the Federal Reserve does. They cut rates by ½ percent a couple weeks ago and the expectation was they may do at least one more of those in the coming months. That seems less likely now. Maybe the Fed will cut a ¼ point but rates will stay close to where they are for the near term.

If you’re looking to take out a fixed-rate mortgage or refinance, you’re starting to see those rates tick higher again. Fixed mortgages are more closely tied to what’s happening with long-term bonds. The yields on those bonds moves in large part based on growth and inflation forecasts. A strong jobs report signals a strong economy with better growth ahead. That means higher yields on long-term bonds, and thus higher rates on mortgages.

If you’re looking to take out a fixed-rate mortgage or refinance, you’re starting to see those rates tick higher again.

Meantime, if the Fed is not cutting as fast, that is good for the returns on your cash or money market funds. It all depends on your bank, but yields shouldn’t drop fast in the coming weeks and months.

The long-term investor has many more factors to weigh. One of the most important is the growth outlook. If the economy looks to be reaccelerating, it should be good for corporate profits. Unless, that growth spurs a new bout of inflation which causes the Fed to stop cutting or maybe even hike rates again. To be clear, we’re nowhere near that point. But, you have to keep that on your radar. This is the daily dance the markets play. Each new piece of information offers a new clue to the future.

It’s important to remember, markets move in all sorts of ways in the short-term. They anticipate something happening and it’s either confirmed or rejected. The initial move either holds or falls apart. You can get whipped into a frenzy if you try to parse out how each move is going to play out.

It’s important to remember, markets move in all sorts of ways in the short-term.

What’s better is understanding that the market and the economy run in cycles. Most years the markets do well. Some years they don’t. But over the long-term, history tells you the markets are much higher today than they were 10 years ago, 50 years ago and 100 years ago.

Because of that history, the practical approach is to set up your long-term strategy and continuing allocating money towards that strategy. Focus making adjustments based on your goals, not your forecasts for the market’s immediate future.

You may miss lots of short-term moves, but you should be better positioned to catch long-term success.

You may miss lots of short-term moves, but you should be better positioned to catch long-term success.

This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

All views/opinions expressed in this newsletter are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC.