As usual, we have all the predictors out there trying to stir up your emotions through fear and greed. I just Googled “market to fall 50%” and got 180,000 results in less than half a second. I then Googled “market to rise 50%” and got 152,000 hits in less than half a second. I guess it is not quite a zero sum game, as we have 28,000 extra hits on the market falling. It is probably easier to use fear than greed to capture your attention, so that likely explains the preponderance of doomsayers.
Oil prices and expected changes in interest rates have been the two things concerning the market in recent months and moving prices up and down. How many of the experts warned you last year that oil prices would fall by over 50%? There are plenty of stories now on why the price of oil has fallen so much, but….where were they last year. The “experts” who spend all their time predicting things did not see it coming. Yet, they want to get you riled up with their latest predictions. The next thing that will move markets is likely an “unknown unknown” at this point.
The market is focused on interest rates these days as the Fed debates when to begin raising rates from near zero. Basically, good economic news indicates rates could be raised sooner and more questionable economic news indicates there might be further delays in raising rates.
The outcome here is a given. Rates will inevitably rise, with the speed of the rise and the beginning date of the rise unknown. You should take advantage of this certainty in your planning. For instance, locking in a favorable mortgage rate (whether on your existing home or a new one) should be done as soon as possible. Yes, rates may not go up soon and could possible go a bit lower but, that is an unknown. What you do know is that rates are near record lows and will not stay there over the long haul. Similarly, you know that rising rates will be a challenge for investors. These low rates have encouraged investors to be risk takers as the cost of money has been low. It will be a challenge to continue along that path and, simultaneously, bond values will likely decrease in the face of rising interest rates. We have no idea how markets will perform in coming months, but it is reasonable to expect a bumpy ride regardless of market direction.
By Ted Schwartz, CFP©