Market pullback expected; current downturn isn’t historic
Stimulus fueled demand, triggered Fed’s actions to curb rise in inflationSeptember 22nd, 2022
Market pullbacks are never easy, especially if you are retired and depend on your investments to generate income to pay your expenses. For so many people, this market pullback is especially difficult. My team and I have been fielding so many doom-and-gloom calls from people afraid of what is next. If you feel this way, too, you are not alone.
Part of my job as a financial adviser is to give perspective, not only from my over 30 years as an adviser, but I also study the market and what economic strategists are forecasting. This market pullback is not so notable and should have been expected. Let me explain.
Our government pumped so much cash into our economy during the pandemic to help support individuals and businesses hurt by the shutdown. Our government artificially kept interest rates (fed rate) historically low so people and companies could borrow at attractive rates. They also did this by sending checks out to individuals and businesses through the Paycheck Protection Program. The New York Times recently reported that over $5 trillion was pumped into our pandemic stimulus payouts.
When that kind of newly printed cash chases limited goods, we know from any economics 101 class that more demand and less supply results in higher prices. Higher prices mean inflation that takes hold and tends not to go down as fast as it went up. The only tool the government has is to raise fed rates to help discourage borrowing and reduce demand.
When I started my career, the Federal Reserve used to change interest rates with no advance notice. Those past unanticipated interest actions would rock the markets and often add to the drama. Now the Federal Reserve makes announcements about its intentions, not only what it most likely will do, but the Fed even give us, the public, a time frame of when it will do it. Lately, the Fed has announced raising the rates, and guess what? It has been executing on those promises. So why are we as a society so freaked out? These changes can and should be expected.
Also, why are we scared about a recession? What’s the big deal? Seriously, a recession is a regular economic trend that usually follows periods of expansion. A recession results as the Fed raises rates and demand for goods softens.
What can you do to reduce the market drama? Consider talking with your adviser about your concerns and getting their perspective. A qualified, licensed professional may have a vantage or opinion you may not have considered. Also, consider turning off the TV and putting away your iPhone, not just for hours but perhaps a few days. So many news organizations are there to sell advertising, not educate viewers. If those news outlets can freak you out enough, you will stay tuned to see the advertisement.
This current market pullback isn’t so special, and we have been through many of these turbulent times. And just like every time in the past, I predict we will get through this too. Let’s focus on a response to the information we hear that is more in line with our timeline and overall goals. This economic unrest will not be the last market pullback we have. All the past market pullbacks have been followed by a market recovery, eventually.