Have you ever heard the expression “the tail is wagging the dog?” This simply means that something small or less significant is controlling something large and more significant. This happens all the time with the stock market. A small piece of news will shoot the stock market up or down too much that day. You could say that just the anticipation of eventual higher interest rates was the tail that wagged the entire stock market in the wrong direction last week.
Interest rates are at all-time historically low levels. Of course they will eventually rise. It is not a question of if rates will rise; it is when. When they do rise, it will create a headwind for additional growth in the stock market, but to say that the stock market can’t rise at the same time as interest rates would not be true. If companies earnings are going up, then the stocks of publicly traded businesses can and will rise, with or without, rising interest rates.
If you watch the market day to day like we do, you can get exhausted by the over-reaction the market makes to any tiny shred of news and, in this case, even the anticipation of that news. One thing is certainly true, we are still very much in a period of time of higher volatility in the stock market. If you have had a change in goals or circumstances, or are approaching a transition such as retirement, more than ever, you should clearly understand how much risk you have in your investments.
If we are managing your investments, the link below my signature that reads “Does My Portfolio Fit Me?” takes you to a risk assessment exercise to help you better understand your risk tolerance. We can marry this risk tolerance score with an assessment of the risk in your portfolio to make sure two are in alignment.
As always, we hope that you find the Weekly Market Review both interesting and informative. Have a great week!
Trevor N. Coe, CFP®