As we coast through an easy winter in anticipation of spring, a new president is in office and just about half way through the first one hundred days. Large changes are promised and there is anticipation of those changes impacting the markets. Let’s see how this theme of change relates to our 401k portfolios:
Summary, Last Qtr: The election of a new president brought with it possible changes in our tax code, deregulation, immigration and repeal of the affordable care act. These possibilities drove markets higher. While these changes have not yet materialized, the possibility of them taking place have pushed markets higher and the anticipation of them has buoyed the markets. The Federal Reserve is concerned with inflation and a market that stays high will likely warrant a rate hike; however, the Fed decided to stand pat at their meeting and kept rates the same.
Our Commentary: The potential new fiscal policy will undoubdtedly have an impact on the stock markets and eventually an impact on the bond markets. If the promised policies are implemented and the markets react positively, the Federal Reserve will react. That means we are entering a period where the Federal Reserve is likely to slow down economic expansion by raising interest rates. When interest rates rise, new bonds that are issued have a higher rate, which means the current bonds are now paying a lower rate and demand for them falls, causing a decrease in their prices. Thus, a rate hike will likely hurt the bond market. Bonds, or at least bond-like performance, is a necessary part of a portfolio as it acts like a shock absorber to the swings of the stock market. Because of the rising rate environment, we use bonds and funds with bond-like performance to reduce interest rate risk but provide stability.
Our Investment Committee periodically monitors the markets and will continue to provide comments at the beginning of each quarter. Each portfolio is different and we recommend getting individual help, which we are happy to provide.
Fixed income securities carry interest rate risk. Fixed income securities also carry inflation risk and credit and default risks. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.
Certain statements contained within are forward-looking statements including, but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties.
Opinions voiced are not intended to provide specific advice and should not be construed as recommendations for any individual. To determine which investments may be appropriate for you, consult with your financial professional.
Indices are unmanaged measures of market conditions. It is not possible to invest directly into an index. Past performance is not a guarantee of future results.
International investing entails special risk considerations, including currency fluctuations, lower liquidity, economic and political risks, and differences in accounting methods. Past performance cannot guarantee future results.