Announcer:
It’s time now on KROS for Financial Focus, brought to you by NelsonCorp Wealth Management. The opinions voiced in this show are for general information only, and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representative securities offered through Cambridge investment Research Incorporated, a broker dealer, member FINRA, SIPC. Investment advisor representative Cambridge Investment Research Advisors Incorporated, a registered investment advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. Now here’s today’s Financial Focus program.
Nate Kreinbrink:
Good morning and welcome to this week’s Financial Focus, brought to you each and every Wednesday morning right here on KROS. Well, this is Nate, James joining me today. Hard to believe second Wednesday of February already. It seems like the year has flown by, although trending warmer, so that’s a good thing.
James Nelson:
Yeah, exactly. Second week of February here. We’re moving towards spring, so it’s all good.
Nate Kreinbrink:
We were able to find a path on the way up of grass.
James Nelson:
Yeah.
Nate Kreinbrink:
That’s a good thing to see that poking through.
James Nelson:
Yeah, we haven’t been able to walk up the hill in a while.
Nate Kreinbrink:
It’s been a little while. But again, as the year’s moving by, it’s flipping the calendar. February 2022 has definitely not been uneventful in as far as the financial world, and people have seen some of the volatility that has been present throughout the first month and a half kicking off 2022. A lot of headlines and, most notably, looking at the Fed and interest rates and what they’re going to look as far as increasing those rates. I know doing the midday report the 10-year treasury is really getting close to that 2% mark, which they’re trying to hit that benchmark, I think, with some of these increases.
James Nelson:
Yep.
Nate Kreinbrink:
But again, that’s going to play out in the markets and obviously more directly in people’s accounts.
James Nelson:
Yeah, definitely. Though, there’s probably two big narratives, and the Fed being the biggest one so far this year. And they haven’t made it a secret, they’re going to raise interest rates three times, maybe four times.
Nate Kreinbrink:
Right.
James Nelson:
May get close to a percent increase by time this year’s over, who knows. But the stock markets reacted unfavorably here in the short term. The month of January was a tough month because of this and people, investors, are trying to re-price where things are at expecting these rates to continue. And the stock market’s been pretty volatile. That’s to be expected. Hopefully, when these rate increases do eventually come around that they’re non-events, because everybody knows they’re coming, and the volatility, hopefully, we’re getting out of the way right now, but time will tell. And again, it really depends I think. The Fed’s going to really be interested to see how these first one or two go, and then adjust fire from there. But we’re definitely in a rising interest rate environment, first time in a long time. And we’re seeing it play out day-by-day,
Nate Kreinbrink:
Right. And I think you hit it on the head there, where it shows that the markets are starting to factor this in to their pricing already. And you go back the last couple of years and the Feds have had their quarterly meetings, or came out with their meeting minutes or whatever. And they’re never really taken a stand as far as which way they were going to go. Which again, we talk all the time markets don’t like uncertainty. And the Fed’s being pretty up front and forthcoming with what their intentions are, the markets can factor that into the pricing. And again, one of the other topics that goes with this is, is trying to fight that inflation that we’ve seen over the past 12 months up over the 6% mark.
Nate Kreinbrink:
People have seen it directly, obviously, with those that are on social security, with that 5.9% cost of living adjustment. They’ve also seen it when they went to the store, when they went and seen some of these other things. Inflation is trying to pull that back down to a manageable rate. We’ll see whether or not that happens, but again, all topics and all topics that are going to directly impact you directly with your accounts.
James Nelson:
Yeah. Well, and it’s interesting. We’ll see if it works. This is really the Feds only weapon to combat inflation is, is to raise interest rates, and the track record hasn’t been great, as far as that working long term. But they’ve got to do some something, and perceptions, reality, and I think people view that as the Fed’s trying to manage things. It’s interesting though, I read an article yesterday talking about inflation, and at this point, Is it Inflation or Is it Price Gouging? That was the headline. And there’s a lot of truth to that. I think companies have gotten comfortable being able to increase prices during COVID, and with all the supply chain issues, and people continue to buy and continue to pay those high prices. They’re not a big hurry to really bring them back down, even though some of these supply chain issues have been worked out. Certainly not all of them, but several of them have. It’s interesting. Inflation’s definitely here, but are some companies, and some businesses, taking advantage of the situation and leaving prices at an elevated level when they don’t necessarily have to?
Nate Kreinbrink:
Right. And I think most people are familiar with just the simple concept of supply and demand. And we’re seeing that a lot through industry, and through imports, and production, and all that that’s coming through it. You go out to a restaurant and there’s always signs up to say, well, because of shipments, we’re out of this, or we’re out of this, or so on. Again, you’re seeing it play out in a bunch of different aspects, and there’s a lot of stuff that’s coming into to play with businesses, and with inflation, and with interest rates. And how they all are intertwined together, especially with the raising of interest rates, businesses borrowing money. It’s obviously gotten more expensive for them to do that than what it has been over the last five years, for say, as far as interest rates being at all time lows for so long. That little increase obviously is filtering down to their balance sheet, and obviously that’s getting passed on.
James Nelson:
Well, and that’s why I think we’re seeing this big sell off in the tech sector. Because a lot of these technology companies are highly leveraged, where half a percent or a percent increase in interest rates really moves the bottom line for these guys, because they carry so much debt. Yeah, exactly. When you see half a percent increase, were at very low levels to begin with. Is that really a make it or break it situation for any of us maybe financing a vehicle? Probably not. We’re probably still going ahead with that purchase. But when you look at, specifically, a lot of these technology companies that have billions and billions of dollars of debt, a half a percent or a percent move there can really move the meter.
Nate Kreinbrink:
Right. And again, all important headlines and how they’re all intertwined. Another one, and we’re starting to see this more and more every day as we go on, how much the world is more interconnected. And what happens overseas, washes itself up to the US shores, and it does impact markets here. It does impact industry and how that goes into it. And we’re seeing that how it’s going to play out with Russia, Ukraine, that conflict. How the US becomes involved with that. And again, although not on US soil, it is going to have an impact, as far as our involvement and what that will do to supply changes, what that will do to imports, what it will do to exports, and how that all factors into it. And that’s another just twist that’s going on with the markets now, above interest rates, above inflation.
Nate Kreinbrink:
Now, you throw this onto it, and obviously COVID still remains out there, as far as a concern with investors just digesting to say is this little dip, and then we’re going to take off again, or is this the start of something bigger? And that’s where, I think, people are in that wait and see mode, and just saying I’m just going to pull out a little bit, and see where things go before I get back in. And that’s what we’re seeing play out with these daily swings in the markets on a daily basis.
James Nelson:
Yeah, definitely. And you mentioned it earlier, it’s just uncertainty.
Nate Kreinbrink:
Right.
James Nelson:
And markets hate uncertainty and who knows where this goes between Russian and Ukraine. Europe’s, like it or not, they’re heavily involved, because of the energy sources. They rely on Russia so heavily there’s limitations there and, you’re right, it’s just such a global economy anymore. I had a client, what do we care what’s going on in Russia and Ukraine? Well, it’s a much smaller world these days.
Nate Kreinbrink:
Yes, it is.
James Nelson:
It does pull us in, to some degree, whether we like it or not. And again, those type of conflicts and these type of periods of time where we’ve had uncertainty, although we’re looking at a pretty short window here for this year, it’s still problematic. And it’s something, like you said, is it a short draw down, or is it something bigger? And that’s what people are trying to evaluate right now.
Nate Kreinbrink:
Well, and I think it’s just back to a reality of investing and what the dangers are out there for it. People got into such a norm again after March of ’09, when we started to see this thing trend positive. We’ve pretty much been in a bull market since then, other than a few little blips along the way, we’ve trended positive and people have gotten used to seeing those three, four, five higher percent rate of returns on their investment accounts. And now, all of a sudden, we’re seeing this volatility, which again, it’s nothing unusual. It’s nothing out of the norm. It’s happened before. It will happen again. But it’s just, again, getting accustomed to maybe being overpaid for the last 10 plus years. We’re back to normal.
James Nelson:
Yeah, exactly. Back towards the average, it seems like, and it doesn’t seem like it’s straight up. And I think the tech sector has been spoiled as much as anybody on the last 10 years.
Nate Kreinbrink:
Right.
James Nelson:
And to see the volatility and see things pull back in general on that side is to be expected. It doesn’t just go up forever. And people have to be prepared. We probably have been overpaid here the last several years as investors. Returns have been pretty easy pickings, and most asset classes have gone up and gone up pretty dramatically. Reverting back to the mean a little bit and again, like you said, this is very normal.
Nate Kreinbrink:
Well, and I think it really comes into play with those individuals nearing retirement, or really at retirement, and taking monthly income from their retirement accounts. That’s where they need to really be careful, as far as not being able to take that big downturn, and as far as minimizing that. If you have questions, as far as how your allocations are, what some of these things, and how they will impact us, give us a call. We’d be happy to sit down and give you a little insight, as far as what you’re looking at, and how your accounts are invested. Did want to mention, real quick, that every Friday NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of February will be donated to the HAVlife Foundation in the quad cities. James, as always, appreciate you joining me this morning.
James Nelson:
Absolutely.
Nate Kreinbrink:
Nate and James with NelsonCorp Wealth Management, bringing you this week’s Financial Focus. Thanks again for tuning in and have a great rest of your week.
Announcer:
Financial Focus is a production of NelsonCorp Wealth Management in Clinton and Davenport. The opinions voiced in the show are for general information only, and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representative securities offered through Cambridge Investment Research Incorporated, a broker dealer member FINRA, SIPC. Investment advisor representative Cambridge investment Research Advisors Incorporated, a registered investment advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. For more information, visit our website at www.nelsoncorp.com.