The new year has given the news outlets plenty to write about! There is continuing political conflict of the impeachment hearings, Covid-19-20-and-now 21 that drags on, and stock market financial highs! It doesn’t give a clear signal as to which way the market is headed.
Let’s consider interest rates. We hear a lot of talk that interest rates are bound to go up, with all the money printing and government spending. Yet when you consider the 30-year Treasury note, it is still near all time lows. The Federal Reserve wants to see inflation. However, any increase in rates will cause an interest expense drag on the economy. In addition, Covid continues weigh on the economy, causing shutdowns for businesses and workers. It would be devastating to add the negative pressure of increased rates at this time. The Fed confirmed in January that it wont raise rates any time soon.
Although we don’t anticipate inflation to reveal itself immediately, inflation is built into the system. Our policy choices today will impact us in the future. But for now, overall, inflation is laying low.
Next, we know the market is at all time highs even though there is much conflicting news as to the impacts of Covid. There are a couple of key points here:
- Where else can money go right now to earn return? With low interest rates, the stock market is an attractive solution.
- Covid immunity may be closer than you think. First, the US has had a strong rollout of the vaccine. Second, the number of people in the US with antibodies is probably about 40% of the population. This is due to vaccination, those testing positive and those untested who have been exposed . We need to get to 70% for herd immunity, and with the vaccine schedule in place, we should be there by summer. This is positive news for the opening of the economy, getting folks back to work and living their lives.
Markets are being supported by the new money being printed – there is no doubt about it. There is still room to grow, as folks get back to work and help fill the supply side of our economy. When the money begins to flow in earnest, investments that do well during inflationary times will be helpful (commodities, real estate) and long-term fixed interest solutions (long-term bonds) will be more at risk.
For those in retirement, it is critical to have a plan that addresses key risks, such as market risk, interest rate risk and inflation risk. Schedule a time to review your plan to help ensure a more secure future.
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