Brandy Auterson:
It’s now time For Your Money. We’re joined by David Nelson, CEO of NelsonCorp Wealth Management. Welcome back, David.
David Nelson:
Thank you very much.
Brandy Auterson:
So by many measures the stock market just finished a historically volatile January, could you share what you think was driving some of those big moves?
David Nelson:
Well January was definitely a volatile month. We had extreme moves, extremely large moves relative to what we’ve experienced over the last several years. Clearly there is multiple issues and dynamics that are in place, not just one item, it’s going to be many different things. Front and center is probably the interest rates, concern of inflation and interest rates subsequently going up. Number two is probably what’s happening over in Russia and Ukraine as far as what’s going to transpire as far as there.
David Nelson:
So I brought along a chart, I think that will again, help folks as far as get a feel for what we’re looking at and talking about today. And that is that the blue line is going to show you as far as the one year expected cash rate, so a fancy way of saying where interest rates, the markets, the bond market are bleeding, that interest rates are going to be a year out.
David Nelson:
So if you haven’t been paying attention cash rates have been essentially zero since the start of this pandemic when the Federal Reserve made significant cuts, as far as in rates. And what the chart didn’t basically illustrate and is not showing is the expected rates moving up until September, that’s when we start seeing that little rise as far as the blue line there.
David Nelson:
Now at the end of last year the market was still only expecting cash rates to be around 0.9%, so what we’ve seen recently is the market reacting to this more hawkish statement from the Fed. In the past month we’ve seen it go from the expected of three to four interest rate increases over the next year to five interest rates increase is expected this year alone. So the turmoil in the markets that we’ve seen we believe has to do with the interest rates being factored in as far as until rates today.
Brandy Auterson:
All right. So tell us, how should investors be thinking about this shift in terms of their portfolios?
David Nelson:
Well first and foremost a lot of people are wondering why a two or three interest rate increases at roughly half percent increase in total could have that big of an impact as far as on the stock market. And what it is primarily is the perception of what the market believes. The Fed’s gone from being basically they’re supporting the markets to now pretty much a heavy wind in the face. So we’re conveying to people that again, this is a much more aggressive stance that the Fed is taken and individuals should be very cautious. We’ve been basically saying this for months as far as to be aware, as far as what you own, and clearly today that’s crucial.