Let’s face it. There’s a lot going on with the economy, the Fed, and the markets.
It doesn’t help that in this 24/7 newscycle world we live in that the media sensationalizes headlines that cause panic and fear in investors.
If you’re feeling doom and gloom or uneasy about your investments, it’s helpful to zoom out and put things into perspective.
And that’s what we’re getting into in this article and video interview below with 401(k) Maneuver Chief Investment Officer, Mark Sorensen.
Keep reading for key market factors you need to be aware of right now.
The Fed and Rising Interest Rates
The Federal Reserve has been on a roll raising interest rates in an attempt to reach their 2% inflation mandate.
And consumers are feeling the pinch.
There is the concern that, if the Fed tightens too much, excessive rate hikes could harm the economy, leading to a recession. But, the Fed has pretty much said they think there’s more risk in stopping too soon than doing too much.
Despite higher rates and one of the fastest rate hikes in history, the market is doing well.
This is because the market is a leading indicator. It looks forward 6 to 12 months down the road.
And it’s already looking past this, and it’s anticipating the Fed is near the end of the tightening cycle – and an earnings recovery in 2024.
Key Market Insights
What caused the market to go down last year was the Fed tightening cycle.
And, as a leading indicator, the market has woken up and started pricing in the earnings recovery.
The market is looking past the current uncertainty to a time when it foresees that we are going to recover – when inflation will be under control, and maybe even that the Fed actually starts to cut rates at some point next year.
Which could be why the market is doing extraordinarily well year to date.
2023 was the 23rd time since 1945 that the S&P 500 was up at least 10% in the first 6 months of the year.
Historically, if you have double digit gains in the first half of the year, the median performance the last half of the year in those 23 times has been 10%.
And 82% of the time the market’s been higher.
The caveat is that the market was down last year. Historically, when the market’s down and the first 6 months of the year are up 10%, the market average is 12% the balance of the year.
History doesn’t always repeat itself, but there are patterns worth looking at – especially when we get nervous about our investments.
Another thing to keep in mind is that market corrections are healthy and necessary. It serves as a vital purpose to sift out easy money and build a new foundation for sustained growth.
Check out the video as Mark Sorensen, our CIO, provides insights into interest rate hikes, AI, and what you need to know about the markets right now.
It Boils Down to Risk Tolerance
Knowing your risk tolerance is crucial. It helps you determine how much exposure you can handle during market fluctuations.
Are you willing to endure a 10% or 20% downturn to potentially reap higher gains later?
Everyone’s risk tolerance is different, and it’s essential to align your investment strategy with your personal preferences and goals.
If you’re nearing retirement or have short-term financial needs, maybe you should be more cautious about having all your money in the market.
Diversifying your investments and considering your time horizon will help ensure your investments align with your goals.
Take Control of Your Financial Future
401(k) Maneuver provides independent, professional account management to help employees, just like you, grow and protect their 401(k) accounts.
Our goal is to increase your account performance over time, manage downside risk to minimize losses, and reduce fees that are hurting your retirement account performance.
We review and rebalance your account for you with the goal in mind of keeping you in what is working and out of what is not.
With 401(k) Maneuver, you can go about your life doing what you love with confidence, knowing we are managing your 401(k) for you.