Last week in the markets
Last week, despite a market sell off on Friday, most U.S. indices were up with modest gains. The housing market saw a 20% increase in mortgage applications. This could be happening because people are anticipating the Fed raising interest rates soon. Retail sales only rose a disappointing 1.2% but it is good to see a little upswing.
The blame is on Greece
The European and U.S. markets were down this morning which is being blamed a possible Greece default. After talks broke down over the weekend, a default is very likely. We see more smoke than fire as Greece is not that large of an economy having only $200 billion in annual GDP. There are bigger companies in the S&P 500. We are keeping a close watch on this situation in Greece as the deadline for the payback is June 30th.
Interest rate Armageddon?
The mainstream news macro theme for several years has been the Federal Reserve raising interest rates. Since the economy is so close to being deflationary we believe the Fed will not raise interest rates any time soon. However, no one knows for sure.
Many people believe that all this attention on the Fed could lead to stocks taking a bashing once interest rates do go up. While there have been a couple of times in the past where that has happened, our research shows that in the past stocks have increased slightly when interest rates are raised. Even though the increase is small, it will not cause an interest rate Armageddon as some people would like you to believe. History does not suggest a clamorous drop in the stock markets when interest rates are raised.
How big could the interest rate increase be?
Each time interest rates have been raised, the Fed has done it differently and there have been different surrounding circumstances. When the Fed does increase interest rates, we believe it will be a very small increase and that these historically low rates will continue for quite some time.
Preparing for an interest rate change
No one can actually predict when the Fed is going to raise interest rates. All our eggs are not in a basket labeled “The Fed is not going to raise rates”. We are risk testing every scenario so we can be prepared for our clients.
Please let us know if you have any questions and keep sending us your comments.
Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Stock investing involves risk including potential loss of principal.