Despite what seem to be ever-increasing risks in the global economy, the stock market continues to push skyward. While this may be a sign of economic resilience, it is just as likely to be a sign of people trying to get on board the gains train. Even those who find the stock market risky, after nearly ten years of steady gains, will eventually want to grab a little piece of the pie.
Meanwhile, the Federal Reserve continues to raise rates. And why not? Unemployment is extremely low, hiring is strong. It looks like nothing can derail this train.
In the background, though, lurk a few dangers. Trade disputes with China are already being felt by some consumers. The housing market’s rapid gains are slowing, as buyers struggle with higher prices and mortgage rates. Mortgage lenders themselves are easing strict buying standards that went into effect after the last housing market crisis.
It’s not easy to say whether those factors will have an impact on the stock market’s incessant march upward. The Fed’s continued “normalization” of interest rates serves as both a guard against inflation and a safety net. Should the economy up-end itself again, the Fed would need some room to cut interest rates in an effort to help.
As interest rates rise, we will continue to snatch up higher yielding bonds in the secondary market. As we get closer to what may be considered a peak (the moment when those lurking dangers step into the light and outweigh the stock market’s optimism), we will increase purchasing to try to take full advantage of higher yields and lower prices.
The last quarter of 2018 is likely to be an active one. Midterm elections, the holiday season, and winter weather should keep us busy with a steady stream of changing information.
This information is not intended to be used as the only basis for investment decisions, nor should it be construed as advice designed to meet your particular needs. You are advised to seek the advice of your financial adviser, legal or tax professional, prior to making any investment decision based on any specific information contained herein.
