By: Bill and Cindi Porter, AILERON INVESTMENT ADVISORS
Q: Why did the stock market become so volatile?
A: Multiple factors can be cited, but it can primarily be attributed to the fear of inflation.
After the 2008 stock market meltdown, the federal government responded with a heavy dose of corporate regulations and taxes. Their combined weight resulted in the slowest post-recession recovery in American history. Inflation pressure was nil. In 2017, the new administration rolled back regulations and corporate tax rates were significantly reduced. The stock market exploded, companies gave out bonuses, and hired new employees. Dormant inflation embers were stoked and could possibly reignite. To avoid such a disaster, the Federal Reserve has announced it may raise interest rates multiple times this year. Rising interest rates can be a major setback for bond holders whose existing low rate bonds will lose market value as rates rise. Rising interest rates will make borrowing money more expensive for companies (and everyone else). This may cause companies to slow down with hiring, delay building new facilities, and investing in new products. The stock markets see this as a real possibility – thus the turmoil. The Federal Reserve kept interest rates at nearly zero for the entire Obama presidency. Pent up demand for higher wages which had stagnated for eight years could now spin out of control. If the Trump administration does not eliminate deficit spending, it could inflate the prices of all goods and services. For those of us old enough to remember 18% mortgage rates in the 1970s, inflation is a real economic threat to all Americans. This is especially true for investors. If inflation is 10% and your investments are only earning 6%, then your true net return is minus 4%. Given the recent market turmoil, it might be a good time to speak with your trusted advisor about inflation resistant assets.
This is for education only. Before using this information in any way discuss it with a financial professional. There are many risks associated with stock trading. You may lose some or all of your financial investment. Securities offered through Dempsey Lord Smith, LLC Member FINRA/SIPC. Securities offered through Integrated Financial Planning Member FINRA/SIPC. Advisory services offered through Dempsey Lord Smith, LLC. All the information in this letter is published in good faith and for general information purposes only. We do not make any warranties about the completeness, reliability and accuracy of this information. Any action you take upon the information is strictly at your own risk.
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All the information in this letter is published in good faith and for general information purposes only. We do not make any warranties about the completeness, reliability and accuracy of this information. Any action you take upon the information is strictly at your own risk.