In this week’s Steady Investor, we cover news and special events that we believe could impact the future of the market, such as:
The Federal Reserve Now Poised to Raise Rates in March – Last week we noted that trading in interest rate futures indicates a70% probability that the Fed would increase the fed funds rate at or before their March meeting. The likelihood has risen since. In testimony given to Congress this week as part of his confirmation hearing for a second term, Federal Reserve Chairman Jerome Powell referred to inflation as a “severe threat” to the economic rebound. This characterization is of course a long way from the “transitory” designation that existed just three months ago. As part of his testimony, Chairman Powell said the Fed is preparing to raise interest rates and that the economy no longer needed extraordinary accommodation, signaling that the central bank may also begin to trim its approximately $9 trillion balance sheet soon after it commences rate increases. In the previous rate hike cycle that began in 2015, the Fed waited years before shrinking down its balance sheet.1
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Handling Volatility – What You Should Do!
Volatility often results in emotional decision-making—like when investors believe that selling out of stocks is the best route to avoid further losses. The real challenge is not finding a way to eliminate volatility—it is developing a mental approach to dealing with it. Our guide, “Helping You Manage Market Volatility,” will provide you with insights and tips to do just that. Get answers to questions like:
If you have $500,000 or more to invest and want to get answers to the questions above, click on the link below to download this guide today!
Download Zacks Volatility Guide, “Helping You Manage Market Volatility.”2
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Are Supply Chain Problems Getting Worse or Better? Services and manufacturing PMIs remain firmly in expansion territory, but the Institute of Supply Management said manufacturing activity fell from 61.1 in November to 58.7 in December. This data may be good news for supply chains. The reason is that the decline in factory activity was largely influenced by the ‘supplier delivery times’ component of the index. In normal times, falling supplier delivery times imply that demand is waning. In the current environment, however, it implies that bottlenecks are clearing. That’s a sign supply chain problems may have peaked, but there are other indicators that issues could get slightly worse yet. The first is China. Because of China’s zero-tolerance policy for Covid-19, major manufacturers across the country are shuttering factories and ordering workers to stay home. Government officials are also rolling out mass testing and locking down cities, which is crimping production and resulting in labor shortages. In the corporate realm, companies like Samsung, Nike, and Volkswagen have already reported production issues. Here in the U.S., the surge of Omicron cases is also becoming a headwind to the supply chain – about 800 Southern California dockworkers, or 10% of the workforce, have called in sick, which compromises the ability to clear the backlog of approximately 100 ships waiting to be unloaded.3
For All the Challenges of the Past Two Years, Households are in Better Shape – In the very early days of the pandemic, many feared the worst with regards to the economy and personal finances. The unemployment rate quickly soared past 20%, and no one truly knew when economic activity would recover. Two years later, we now know the worst economic fears were avoided, and for many Americans, personal finances are in even better shape than they were before the pandemic. According to the Census Bureau, the first two rounds of stimulus payments lifted close to 12 million Americans out of poverty. Stimulus payments, child tax credits, expanded unemployment benefits, healthcare subsidies, and suspended student loan payments combined to help Americans pay down debt and sock away $2.7 trillion in extra savings. Wealthier households fared even better, given a historically strong housing and stock market. Families in the top 10% of income had stashed some $1.5 trillion in extra savings as of Q3 2021, which was more than all other income groups combined. Rising inflation has placed a check on how far these extra savings will ultimately go, but rising wages are in effect pushing back. All told, for many American households, they are better off financially today than ever before – one of a few reasons to be optimistic in 2022, in our view.4
Navigating Through Market Volatility – One challenge investors will face, especially with continued negative impacts from Covid-19, is market volatility! Even though it’s a normal part of the market flow, there are ways to eliminate it.
In our guide, “Helping You Manage Market Volatility,”5 we provide you with insights and tips to do just that. Get answers to questions like:
If you have $500,000 or more to invest and want to get answers to the questions above, click on the link below to download this guide today!
Disclosure