Skip to main content

Month: June 2022

Bear Market Update

The S&P 500 has recently slid into a bear market due to inflation and fears of a recession. As expected, the Fed announced a 0.75% interest rate hike.1  That may not sound like much, but it’s the largest single rate increase since 1994. 1  To keep you up to date on what’s going on, let’s do a quick Q&A. 

Q: What, exactly, did the Federal Reserve do?

A: Raise the “Federal Funds Rate”.  This is the interest rate that banks pay each other for overnight loans.  When the rate goes up, it costs more for banks to loan each other money. In response, banks raise their own interest rates. That’s why, when the Federal Reserve raises the federal funds rate, it eventually affects consumers and small businesses whenever they apply for a loan.  Specifically, the Fed raised the rate up 0.75% to approximately 1.6%.1 

Q: How did the markets react?

A: Initially, the markets rose soon after the announcement, as it was expected, and because many experts believe it’s necessary to tamp down on inflation.

The day after, though, the markets continued their slide.  The S&P 500 and NASDAQ are firmly in bear market territory, and the Dow is getting close. 

The reason for this is because the Fed also announced that a second 0.75% rate increase is possible in July.  While higher interest rates are a proven tool for fighting inflation, each rate hike increases the odds of a recession, even if it’s a small one.  The markets dropping further is essentially investors pricing in the likelihood of more action from the Fed…and a greater chance of an economic downturn. 

Q: What is the Fed hoping to achieve here?

A: When the Fed announced the rate hike on Wednesday, they also revealed something else: Their economic outlook for the rest of 2022.  The Fed’s hope is to achieve what’s called a “soft landing.”    This is where economic growth slows, but a full-blown recession is avoided.  There’s some justification for this hope.  After all, if you remove inflation from the equation, the economy is actually in pretty good shape.  The unemployment rate is at 3.6%, which is almost back to where we were in January 2020 before COVID hit.2  And consumer spending – the bedrock of our economy – remains strong.  It was to shore up the economy that the Fed dropped interest rates in the first place.  Now, the thinking goes, that mission is complete, which means it’s time for the Fed to pivot to the second prong of their “dual mandate”: stabilizing prices.  (The first prong is stable employment.)

Unfortunately, soft landings are historically difficult to achieve, and the most recent data suggests an economic slowdown may already be happening.  Consumer sentiment is dropping, retail sales numbers have dropped slightly over the last month, and while the economy continues to add jobs, it did so at a slower pace in May.1  Even the Fed admits that the unemployment rate will likely go up over the next few years.  (Moving from 3.6% to 4.1%, according to their projections.1

Q: So, what should we do moving forward?

A: The main thing right now is to remember that the markets move based on what investors expect to happen, not what is happening right now.  At any point, those expectations could change.  Every new bit of economic data between now and the Fed’s next meeting in July will be carefully scrutinized.  That’s why it’s never a good idea to overreact to the day-to-day swings in the market, even if they seem significant.  The sentiment that drives the market today may be completely different tomorrow. 

Remember: We endured both a bear market and a recession not very long ago.  Keeping the long-term in view helped us not only get through rough times but take advantage of a tremendous recovery. 

Of course, if you have any immediate financial goals, or need access to some of your money in the short-term, let us know and our team will help you promptly.  And of course, if you have any questions or concerns about your portfolio, don’t hesitate to reach out.  That’s what we’re here for!     

As the summer progresses, we’ll keep you apprised about what’s going on in the markets.  In the meantime, enjoy the warmer weather knowing that we are here to do everything we can to keep you working toward your financial goals.      

1 “Fed hikes its benchmark interest rate by 0.75 percentage point, the biggest increase since 1994,” CNBC, https://clicktime.cloud.postoffice.net/clicktime.php?U=https%3A%2F%2Fwww.cnbc.com%2F2022%2F06%2F15%2Ffed-hikes-its-benchmark-interest-rate-by-three-quarters-of-a-point-the-biggest-increase-since-1994.html&E=maryellen%40mmwealth.com&X=XID793AFuR7T7793Xd2&T=MMWL&HV=U,E,X,T&H=46cf2e46f2cc5f68e79a2d364fd4ec5052f5340f

2 “The Employment Situation – May 2022,” Bureau of Labor Statistics, https://clicktime.cloud.postoffice.net/clicktime.php?U=https%3A%2F%2Fwww.bls.gov%2Fnews.release%2Fpdf%2Fempsit.pdf&E=maryellen%40mmwealth.com&X=XID793AFuR7T7793Xd2&T=MMWL&HV=U,E,X,T&H=0c145dfe397266fae066dd051f8fdcdbef3da5e2

Retirement Income Dreams

Everyone loves to collect paychecks.

Prior to retirement your employer (or their payment service) handles all the details. They ensure you get money into your retirement plan and your bank account.

But who watches over all that after you retire?

You worked hard and saved for years for this moment. When you get there, you want to focus on following your dreams. You don’t want to be worried about money.

Will you still have someone making sure you get money into your bank account at the right time? What about making sure you are paying only the absolutely necessary taxes, and not a penny more?

That’s where our team comes in.

We specialize in helping remove the uncertainty of your “paycheck” in retirement. It should not be on your list of worries.

If you are concerned about paying too much in taxes, getting enough money into your account when you need it, accomplishing your charitable goals, or just making your money last, please give our team a call.

Our goal is to help you make some of those retirement dreams, reality.

Friends in Retirement

We often think of retirement as the time to finally do the things we have been putting off. We tell ourselves “Work hard now so we can play later.” Or, perhaps, we get so caught up in the day-to-day chaos that finding time for leisure like hobbies, clubs, or social groups takes a back seat.

In fact, we are willing to bet that if you really think about it, your social circle can be traced back to two main groups:

work (obviously, we spend most of our time there)

and if you have kids, their direct network, whether that is school, sports, or extracurricular activities.

And those bonds are the ones that resonate most with you. They are the core aspects of your life: work, values, and children.

But what happens when you leave that job, and your kids get older? What happens when you suddenly have free time?

What are you left with?

A decades old list of potential hobbies?

What do you do with that?

Well, it’s a great place to start.

At the risk of getting too psychological, it’s easy to put the needs of a job or children before your own, and soon that becomes our identities.

But there is something really fun and exciting in getting to rediscover yourself! It’s like a clean slate.

So, pull out that list. Test the waters. See what piques your interest.

Don’t have a list?

Here are some ideas to get you started, as well as some ways to meet others who share that common interest.

Four Keys to the Market

There are four keys to doing well in the markets.

This is not one of those penny stock ads or any “Get Rich Quick” schemes.

These keys will, however, help you stay disciplined and progressing towards your goals. So, without further ado, here they are:

✈️  Set a destination in mind. Meaning, what is the point of your investments? By when will you need your investments to pay for what you need?

📈  Decide on the acceptable level of risk for your journey to your destination. Investments have the potential to lose value. Those investments that sound amazing because they went up 100%, also tend to have the potential to go down 50% or more. Really, this question of risk comes down to, what level of volatility is needed for your plan to be successful? Remember, volatility is just a measurement of speed at which the price moves. That movement includes rising prices.

📜  Follow rules to your buying and selling of securities, not headlines. In other words, remove the emotions from your investment decisions. It is a lot easier said than done, which is why having a good advisor is tremendously helpful. Make sure your advisor has a rules-based approach to their investments.

💼  Always do your research. Don’t rely on “that guy at work” for your investment advice. Don’t rely on that one headline either. We have found that by doing your own research, you automatically remove a lot of emotion from the buy or sell decision.

There you have it. Four keys to investing in the markets. Of course, this is not an exhaustive list, but these are ones we find are missed by average investors. If you don’t feel you have all four in place with your plan, please give us a call.