{"id":12069,"date":"2022-11-16T20:34:16","date_gmt":"2022-11-16T20:34:16","guid":{"rendered":"https:\/\/zacksim.com\/blog\/?p=12069"},"modified":"2022-11-30T20:36:21","modified_gmt":"2022-11-30T20:36:21","slug":"impact-of-higher-interest-rates-for-borrowers-and-savers-2","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/impact-of-higher-interest-rates-for-borrowers-and-savers-2\/","title":{"rendered":"Inflation Falls, Market Soars. Is the Bear Market Over?"},"content":{"rendered":"\n

Allie P. from Norman, OK asks: <\/em>Hello Mitch, I noticed last week that the market shot up when the inflation numbers came out, but the numbers weren\u2019t even that great. Do you think this is just another bear market rally like we saw over the summer? Thank you.<\/p>\n\n\n\n

Mitch\u2019s Response:<\/strong><\/p>\n\n\n\n

Thanks for writing. You\u2019re right \u2013 the October inflation numbers (7.7%) that came out last week were not that great, but they were better-than-expected <\/em>and they did mark a meaningful decline from June\u2019s peak 9.1% rate and the 8.2% print in September. When the volatile food and energy categories are stripped out, the \u2018core CPI\u2019 was seen rising 6.3% year-over-year in October, down from the 6.6% rate in September. These are moves in the right direction.1<\/sup><\/p>\n\n\n\n

To be fair and to your point, however, these numbers tell us inflation is still elevated and that the Federal Reserve has more work to do. But it also signals that inflation is likely getting better\u2014not worse\u2014which could tell us we\u2019re moving closer to the peak in the interest rate cycle, not further away.<\/p>\n\n\n\n

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The market may be showing \u2018better-than-expected\u2019 inflation numbers, but I wouldn\u2019t get too comfortable. Just imagine\u2026you are working hard to build up your retirement and then the market plunges. What happens to your portfolio?<\/p>\n\n\n\n

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Consider this bit of history as well\u2014since 1960, the consumer price index (which measures inflation) has gone above 6% on five occasions, in 1970, 1974, 1979, 1990, and 2022. We don\u2019t yet have confirmation for what will transpire this year, but in every other historical instance<\/em> when CPI peaked somewhere above 6% and started falling, stocks staged relatively powerful rebounds. In many cases, stocks don\u2019t need \u2018good\u2019 or \u2018great\u2019 to do well \u2013 they just need \u2018less bad.\u2019 In other words, by the time inflation gets back down to the 2% – 3% levels the Fed wants, the market will likely be well into the next bull market, having anticipated these gradual improvements over time.<\/p>\n\n\n\n

Last week, the 2-year U.S. Treasury rallied strongly on the same day stocks did. The 2-year tends to shift alongside expectations of future Fed policy, so the sharp decline in yield (and increase in price) showed investors anticipating that the pace of Fed increases may moderate with the favorable inflation reading. Traders are betting that the Fed will raise the benchmark fed-funds rate by 50 basis points at the December meeting, easing concerns of another aggressive 75 bp rate hike.<\/p>\n\n\n\n

A too-optimistic outlook for future Fed policy is what got the markets in trouble over the summer, and it\u2019s possible we could be seeing a repeat of that now. Fed governor Christopher Waller, likely sensing the market\u2019s shifting optimism, tried to temper expectations last week when he said: \u201cThe market seems to have gotten way out in front on this. Everybody should just take a deep breath\u2014calm down. We have a ways to go yet.\u201d<\/em><\/p>\n\n\n\n

Over the last 40+ years, there have been numerous bear market rallies that last an average of 44 days with positive returns usually around +10% to +15%, where cyclicals outperform. It\u2019s possible we\u2019re in one now. But I have also written previously that what we\u2019re looking for now are more signs that a mild recession is underway and that inflation has topped out, both of which would indicate a turn in the cycle for markets. I think we\u2019re seeing more of these signs now than we were over the summer.<\/p>\n\n\n\n

The future of the market is unpredictable \u2013 and that\u2019s why I recommend that investors, especially those who are nearing retirement, start planning a retirement strategy that takes the \u201cwhat ifs\u201d into account.<\/p>\n\n\n\n

If you have $500,000 or more to invest, get our free guide, How Solid Is Your Retirement Strategy<\/strong><\/a>.3<\/sup><\/em> You\u2019ll get valuable and practical ideas to help build a \u201cweatherproof\u201d retirement strategy that can potentially protect your retirement nest egg from any storm that could threaten your financial security.<\/p>\n","protected":false},"excerpt":{"rendered":"

Last week’s big rally was ignited by the October inflation numbers that were better than expected. Is this a bear market rally or a new bull market?<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[66,71],"tags":[],"class_list":["post-12069","post","type-post","status-publish","format-standard","hentry","category-mitchs-mailbox","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12069","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=12069"}],"version-history":[{"count":3,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12069\/revisions"}],"predecessor-version":[{"id":12096,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12069\/revisions\/12096"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=12069"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=12069"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=12069"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}