Markets do not like uncertainty, and that is all we have had this year. There are variables in play now that we have not experienced in a long time. Inflation is the driving factor behind the market volatility we are currently experiencing.
The Federal Reserve (Fed) is trying to make up for their lost opportunities in the fight against inflation and raised interest rates 0.75% last week. Chairman Powell’s comments that they will continue to raise rates until energy prices go down leads us to believe that the probability of recession is now high, and the timeframe is soon.
Consumers feel the pain of recession before economic data reflects it, and consumer sentiment is at all-time lows.
Broadly speaking, stocks have fallen more than 20% YTD. Most of that decline has been overpriced stocks correcting to a reasonable level. However, when the economy slows down, corporate earnings will decrease, and the market will go down further.
With both stocks and bonds down significantly, there are no safe havens.
Let us share our strategy to withstand even this type of scenario.
Our client’s investments are in a series of time-horizon strategies. So, each client has money tailored for when they want to spend.
Shorter-term spending needs are funded by our more conservative strategies, which include cash. They are not immune to interest rate sensitivity but are less volatile than stocks and generate income. This allows assets invested for long-term growth the time needed to ride out even today’s volatility. Effectively, growth assets are insulated by shorter-term income assets, so these price swings in stocks do not impact our clients’ emotional freedom to spend on their goals.
The ability for our clients to continue taking current income while providing time for necessary growth is more important than ever.