The stock market had a difficult 3rd quarter with the S&P 500 down over 6%, and down about 10% from the May 2015 all-time high.
A stock market decline is something I have been anticipating for quite a while now. Unfortunately, pinpointing exactly how it plays out is much more difficult than anticipating it: As Yogi Berra once said, “It’s tough to make predictions, especially about the future.”
In economic news, the Federal Reserve did not raise the Fed Funds Rate at their September meeting citing market volatility and a China slowdown. Some investors were anticipating a 0.25% increase. Now the market seems to believe an interest rate hike will be a 2016 event instead.
I find it interesting that an interest rate hike ‘later this year’ has been the mantra of investors and the Fed for several years now. It reminds me of the individual who wants to begin saving for retirement, but the right time to begin saving is always a year or two away. Similarly, I plan to start a diet right after this piece of cake…Sure!
At the margin, I believe that lower interest rates increase demand for risk investments. If this is true, then the opposite should also be true if interest rates rise.
Decreased demand for risk investments is the reason why investors are concerned with interest rates.
No one knows where the stock market will go next, but I believe it is prudent to make sure you are positioned to benefit from market volatility in the long run.
Disclaimer: The commentary above is the opinion of Sound Investment Strategies. To the extent that information we provide is historical, it should not be considered predictive of future circumstances/returns. There is always a potential for profit or loss in the future. Nothing in this blog post is to be construed as an advertisement, inducement or representative of performance results.