Another day, another worry…
For months and months, the markets have been freaking out about the possibility of several rate hikes this year. That has led to a re-rating on most assets to account for the potential new interest rate environment. How much you can get paid for taking no risk (buying U.S. Treasury bonds) has everything to do with how much you’ll pay for all other assets including stocks.
Inflation has been the primary driver for the upcoming Fed rate hikes. But, there’s also a desire to get to a more normalized environment where the market is not as driven by Fed policy.
Over the past few weeks, the markets have been digesting the situation with Ukraine and Russia. The Ukrainians have certainly been inspirational in their fight, but the overall outcome is still very much in doubt. So, markets are trying to gauge all aspects, from the state of the battlefield to Russian sanctions and the role China may play in all of this. In short, nobody knows how any of it will play out. And, that’s the reason for the volatility.
But, the market continues to handicap different possibilities with each passing day. One growing concern is the price of energy and other commodities. They’d already been moving higher on the backs of Fed stimulus and the re-opening of the global economy.
But, now the disruptions around the Russian energy markets are causing further spikes. Federal Reserve Chairman Jerome Powell told Congress last week that a prolonged conflict in Ukraine could cause oil prices to continue climbing which would further inflame the inflation situation.
And, those persistently higher energy prices, we believe, have economists forecasting slowdowns in global growth. CNBC took an average of 14 market forecasts and found expected growth for the U.S. this year has been trimmed to 3.2% from earlier forecasts. That’s still excellent, but not as good as the 3.5% growth they estimated just last month. The majority of the markdowns came in forecasted numbers for the second quarter.
WHAT TO DO?
As you can see, the market’s wall of worries continues to grow. So, how should you think about your investments in this environment?
We believe being defensive is not a bad thing, especially if this market turbulence is giving you fits. This is when it’s vital knowing what rate of return is necessary to fund your lifestyle. How fast do you need your investments to drive to get your desired income?
For example, if it’s 45 MPH and you’re going 60, you may have room to adjust. Once you know your required speed, you can decide how much you want to adjust your portfolio to possibly give yourself a less bumpy ride.
If you’re not sure how to determine this and want some guidance, reach out. We’d be happy to help you work through your situation.
All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. All economic and performance data is historical and not indicative of future results. All views/opinions expressed in this article are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC.