When I toggled over to my favorite news website this morning, I was met with two contrasting headlines. The first said “Russia is Continuing to Build Up Forces Near Ukraine.” The second, right below it, “Russia says it is pulling back troops from Ukraine border.” The irony of those two headlines hitting the site concurrently wasn’t lost on me.
But, that’s the type of messaging we're getting in the news.
This stuff can really stir up fear in us, can’t it? Which one is it? What’s really happening? Where are we headed?
The truth probably lies somewhere in there, but where?
Unfortunately, we haven’t discovered how to get our news without bias and with true, absolute clarity. This is probably because when we hit these intricate and difficult situations, they have many different parts that are moving in opposite directions at the same time. One reporter finds one direction, another finds a different one, and the world gets mixed messages.
That said, I’m not here to talk about Ukraine today. I only mentioned that as an example of how we can get really worked up about something, only to have the opposite story hit the presses the next day!
What do we gain from buying into that level of stress and fear?
Not much. I try to share information on this blog that is as accurate as possible so you can make informed decisions. But I don't want to peddle fear!
And that, my friends, brings me to the real topic of the day:
Interest rates and the Federal Reserve.
It’s no secret that the Federal Reserve plans to hike interest rates this year, and that will probably begin in March.
Because of this, there has been a great deal of market volatility. Anticipation for an uncertain future does not make the stock market very happy.
However, please understand, you really don’t have to panic right now.
In his article, “Here’s what history says about stock-market returns during Fed rate-hike periods,” Mark DeCambre shares:
“As it turns out, during so-called rate-hike periods, which we seem set to enter into as early as March, the market tends to perform strongly, not poorly.
In fact, during a Fed rate-hike period the average return for the Dow Jones Industrial Average DJIA is nearly 55%, that of the S&P 500 SPX is a gain of 62.9% and the Nasdaq Composite COMP has averaged a positive return of 102.7%, according to Dow Jones, using data going back to 1989 (see attached table). Fed interest-rate cuts, perhaps unsurprisingly, also yield strong gains, with the Dow up 23%, the S&P 500 gaining 21% and the Nasdaq rising 32%, on average during a period of Fed rate cuts.”
What this means is that even though there are currently negative sentiments that are moving people into fear, the historical reality doesn’t support the narrative that a rate-hike will cause the market to perform poorly.
There is also the reality that the markets have already priced-in rate increases. The 2 year interest rate has already risen and this is reflective of what the market believes the Fed will do. This means that the rate-hikes have already been priced-in to the current market, as Robert Rayburn shares in his Market Update from February 10th. He also shares that, historically, when there have been negative sentiments like we are seeing today, within 3 months, the market tends to go up– not down.
I know I don’t have the power to see the future, but I don’t believe that clinging to fear in this moment is necessary or helpful. There are indicators out there from history that show we have reason to be hopeful, and panic doesn’t need to be stirred up in our minds.
We’ve been through enough lately.
And yes, there are very real issues we’re dealing with as far as inflation and volatility, but our country has been here before, and we’ve recovered.
Although I've got strong opinions about the government's current debt level, I don't think it will ever be a bad thing for the Fed to stop printing money... Again, history speaks and we are wise who listen without panic.
Let’s try to relax a bit as winter ends, because spring is right around the corner and there are sunny days ahead.