That '70s Show: Echoes in Today's Market
Vibes of the 1970s are reverberating throughout the current financial landscape. Stock and bond markets have been volatile, as interest rates have risen fast due to the Fed’s historic rate-hiking effort to burn out 40-year-high inflation. For many, the resurfacing of high inflation triggers memories of a time when prices surged, impacting every facet of the economy. This, along with the resurgence of interest rates, has created a very challenging investment environment.
Similarities between now and the ‘70s:
- High inflation.
- High interest rates (compared to recent history.)
- Geopolitical unrest (wars in the Middle East and a Russian invasion of a foreign country.)
- Anxiety about energy prices.
- Elevated and rising concerns about US debt and deficits.
As history draws parallels between then and now, many investors are tasked with navigating familiar yet unpredictable terrain. Understanding these echoes from the past equips us to make informed decisions, leveraging insights gained from a previous era's market dynamics. Perhaps, the most important takeaway is the simplest: markets are resilient. If you are invested for the long-term, you are likely to see your investments grow. While the market may fluctuate in the short term, it historically trends upwards over time.
Why so much volatility in the bond market?
The bond market has been volatile in recent months, with yields fluctuating as investors weigh the outlook for inflation and interest rates. In October, the benchmark 10-year U.S. Treasury yield briefly topped 5%, the highest level since 2007, before falling back to around 4.4% in mid-November. The very recent decline in yields has been driven by signs of slowing economic growth and easing inflation pressures. However, uncertainty remains about the future path of interest rates, and bond yields could still rise if the Federal Reserve signals a more hawkish stance on monetary policy.
What's next for the markets?
- Will ‘seasonality’ propel stocks into year-end and cause investors to ignore the long-term impacts of high interest rates?
- Will inflation continue to decline?
- Will economic growth remain generally stable and not rapidly deteriorate?
- Will geopolitical tensions ease?
- Is the Federal Reserve finally done hiking rates and when will they begin to cut rates?
Final Takeaways:
The echoes of the 1970s are unmistakable in today's investment environment, with high inflation, rising interest rates, and geopolitical turmoil creating challenges for investors. While these parallels are unsettling, they illustrate the importance of staying focused on a long-term investment plan and avoiding impulsive decisions. At Primoris Wealth Advisors, we're here to help you on your financial journey. Please don’t hesitate to contact us if you have worries, concerns, or any questions at all.
