The Fed’s Next Move
Two developments that have been building over the past several months came together over the weekend to put upward pressure on interest rates. The first was Federal Reserve Chairman Kevin Warsh’s speech at Jackson Hole. Warsh emphasized his commitment to discipline rather than making a specific policy decision. While the statement itself was not entirely unexpected, the message reinforced his reputation as someone who places a strong emphasis on controlling inflation. That stance generally points toward a higher-for-longer interest-rate environment. The second development was increased friction surrounding the conflict with Iran. As tensions have escalated, oil prices have moved higher, adding pressure through higher energy costs. Together, the Fed’s more hawkish tone and rising energy prices have contributed to a meaningful increase in interest rates. The market is now looking ahead to the Federal Reserve’s September meeting. Just one week ago, the prevailing expectation was that the Fed would leave interest rates unchanged. Over the past seven days, however, the probability of a September rate hike has risen from 41% to 66%, representing a significant shift in market expectations. While there is still uncertainty about whether the Fed will ultimately raise rates in September, the meeting is clearly shaping up to be a “live” meeting, meaning the outcome is far less certain than it has been in recent meetings. With relatively little economic data expected between now and the meeting, investors have limited information available to provide clarity. As a result, markets are responding to that uncertainty by pushing short-term interest rates higher. Interest rates remain an important factor to watch because they influence much more than the bond market. Changes in rates can affect mortgages, credit conditions and borrowing costs, ultimately influencing the financial decisions and bottom lines of individuals and businesses.
September Seasonality
The Federal Reserve is only one piece of the market puzzle. Historical seasonality is another trend worth watching as September approaches. Seasonality is one of the many market trends analyzed when developing portfolio strategies, and September has historically been one of the more subdued months for market performance. However, the market’s current positive trend provides an important piece of context. Historically, September has performed better when the market enters the month in a positive trend. Conversely, September can be more challenging when the market begins the month, already in a negative trend. That makes the market’s current momentum particularly important as investors head into the fall. There is another historical consideration this year. September has typically been a weaker month during midterm election years. The question now is whether the market’s positive trend and strong momentum coming out of earnings season can help offset some of that historical weakness. The market is entering September following an impressive earnings season, giving investors a constructive backdrop despite the potential headwinds from interest rates, geopolitical developments and historical seasonality. As September unfolds, several factors will be closely monitored: the Federal Reserve’s next decision, developments in the Middle East, the direction of interest rates and the market’s seasonal tendencies. History can provide useful context, but market conditions can change. The key will be watching whether the market follows its historical September pattern or maintains the strength it has demonstrated coming out of earnings season.
Greg Powell, CIMA®
President and CEO
Wealth Consultant
Email Greg Powell here
Bobby Norman, CFP®, AIF®, CEPA®
Managing Director
Wealth Consultant
Email Bobby Norman here
Trey Booth, CFA®, AIF®
Chief Investment Officer
Wealth Consultant
Email Trey Booth here
Ty Miller, AIF®
Vice President
Wealth Consultant
Email Ty Miller here
Fi Plan Partners is an independent investment firm in Birmingham, AL, with a team of professionals serving clients across the nation through financial planning, wealth management and business consulting. The team at Fi Plan Partners creates strategies in the best interest of their clients using fee based 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.
Economic forecasts set forth in this presentation may not develop as predicted.
No strategy can ensure success or protect against a loss.
Stock investing involves risk including potential loss of principal.
Securities and advisory services offered through LPL Financial, Member FINRA/SIPC and a registered investment advisor.
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