If you’ve been watching the financial news recently, there’s been a lot to digest: inflation at 39-year highs and expectations the Federal Reserve will hike interest rates this year.
We get it. It’s hard not to react to headlines about economic news or big market swings. It brings up questions about your financial security and your retirement.
Now, what is happening in the markets and why?
Interest rate hikes
One of the key themes that could continue to impact financial markets in 2022 are Federal Reserve interest rate hikes. The Fed has kept interest rates extremely low – near zero percent – since the Covid-19 crisis began in 2020. Now, with inflation climbing, the Fed is expected to shift monetary policy higher this year – with several interest rate hikes – in an attempt to tamp down rising prices. The prospect of higher interest rates is one of the factors triggering stock market volatility as market participants try to predict what the Fed will do and when.
Tech sector stock sensitivity
Recently, technology sector stocks have been more sensitive to rising rates and changing expectations around the pace of rate hikes. So, with at least three Fed interest rate hikes expected this year, some investors reassessed the value of tech stocks. The Nasdaq composite is heavily technology-based, and the S&P 500 has a large tech weighting as well, so they registered some of the biggest losses in January.
What does it mean for you?
It’s important to remember that the S&P 500, Nasdaq and Dow Jones Industrial Average represent just one segment of the financial markets. At Edelman Financial Engines, the investment strategy we implement for our clients includes diversifying their portfolio among different asset classes. We invest for the long term and rebalance as needed.
What you can do now
First, stay focused on your long-term investment goals. Remember that market pullbacks and corrections are normal. Over the past three years, the S&P 500 posted abnormal double-digit returns from 18% to 31% and of course, past performance does not predict future results.
Second, learn from a trusted source. If you have questions or would like to discuss the current market environment, talk with an Edelman Financial Engines planner. Inflation has taken center stage in the news this year. If you’d like to learn more about your wealth in inflationary times, consider watching our webinar on this topic.
We also encourage you to listen to Episode 4 of Everyday Wealth™, as co-hosts Soledad O’Brien and Jean Chatzky talk to economist Larry Kotlikoff about inflation.
Last but not least, remember these wise words: More than a century ago, someone asked legendary banker JP Morgan what the stock market was going to do. He replied, “It will fluctuate.”
If you have concerns about market volatility, connect with one of our independent financial advisors.
An index is a portfolio of specific securities (common examples are the S&P, DJIA, NASDAQ), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. Past performance does not guarantee future results.
Investing strategies, such as asset allocation, diversification or rebalancing, do not assure or guarantee better performance and cannot eliminate the risk of investment losses. There are no guarantees that a portfolio employing these or any other strategy will outperform a portfolio that does not engage in such strategies. Funds and ETFs are subject to risk, including loss of principal. All investments have inherent risks. There can be no assurance that the investment strategy proposed will obtain its goal. Past performance does not guarantee future results.
