The Fed Move, Election Implications, and More
As a parent, I recently talked with my son about the importance of consequences. If you don’t complete your schoolwork, no treat after school. It’s a simple but powerful lesson in how our actions have both good and bad outcomes. This is something we face every day—whether in life, on the playing field, or in the financial world.
Much like my son’s choices in school, the market is full of consequences too. Actions lead to reactions, and lately, we’ve seen a lot of that in the financial world with ongoing volatility.
The Market and the Election
Expect volatility leading up to the coming election, why? Uncertainty. The market does not like uncertainty.
As we look ahead, it’s clear the market’s volatility isn’t going away anytime soon. We’ve already seen some big swings—drops, recoveries, and everything in between—thanks to ongoing interest rate adjustments. A lot of this uncertainty stems from the upcoming election. Historically, elections don’t guarantee a positive or negative market reaction. Instead, it’s the policies that follow the election that will truly impact the market, just as past policy changes—like tax cuts or interest rate hikes—have had clear consequences.
Politics don’t matter to the market…
While election results matter deeply to our country, they matter less to our financial markets in aggregate.
Historically, we have seen healthy returns across a range of administrations. From Republican-controlled to Democratic-controlled to a divided house.
Policy does matter to the market
Think back to 2017 when the Tax Cuts and Jobs Act passed. Businesses saw lower tax rates, which allowed many to grow, benefiting both them and their investors. It was a clear example of how good policies lead to positive market consequences.
On the flip side, the interest rate hikes we’ve endured over the past few years have made life harder for small-cap growth companies, which rely heavily on funding for their expansion. As borrowing became more expensive, many of these companies suffered, with growth slowing by nearly 50% in some cases.
The point is, that while political party control may not dictate market performance, the policies they implement will.
We’ve all experienced the effects of rising interest rates in recent years, some positive and some negative. Now that rates are starting to drop again, we’re seeing some positive consequences, like a jump in the market. But, just like in life, not all consequences are good. Lower interest rates, while great for market growth, also mean savers and retirees might see their returns decrease, especially on CDs or fixed annuities. If you’re nearing retirement or looking to lock in rates for a more secure financial future, this is a critical moment to explore alternatives like fixed index annuities. These can provide growth opportunities while limiting downside risk—just like knowing that sometimes you get the treat, and sometimes you don’t!
For those who may not be familiar, fixed index annuities allow you to benefit from market gains (with a cap, usually around 10%) while protecting you from losses. If the market goes up 12%, you still get 10%. If the market drops, you don’t lose any value—your return is simply zero for that period. This is why many experts are looking at these as a solid alternative to traditional bonds for generating retirement income. It’s all about making sure you don’t go backward when the market dips, much like teaching my son to avoid negative consequences by making the right choices upfront.
Fed Move – Interest Rates
We’ve all experienced the effects of rising interest rates in recent years, some positive and some negative. Now that rates are starting to drop again, we’re seeing some positive consequences, like a jump in the market.
But, just like in life, not all consequences are good. Lower interest rates, while great for market growth, also mean savers and retirees might see their returns decrease, especially on CDs or fixed annuities.
If you’re nearing retirement or looking to lock in rates for a longer period for a more secure financial future, as the rates are and will continue to drop in all likelihood.
This is a critical moment to explore alternatives like fixed index annuities. These can provide growth opportunities while limiting downside risk—just like knowing that sometimes you get the treat, and sometimes you don’t!
For those who may not be familiar, fixed index annuities allow you to benefit from market gains (with a cap, usually around 10%) while protecting you from losses. If the market goes up 12%, you still get 10%.
If the market drops, you don’t lose any value—your return is simply zero for that period. This is why many experts are looking at these as a solid alternative to traditional bonds for providing stability to your portfolio and generating retirement income.
What You Should Do
If your portfolio is managed by our team, rest assured they’re already watching the market closely and making adjustments to protect your investments.
For example, when interest rates began to rise, our team switched from small-cap growth to more stocks, which were less affected by the hikes. This kind of proactive management helps to avoid negative consequences while seeking positive returns.
But if you’re managing your investments on your own or you have your portfolio elsewhere, now might be a good time to do a risk review.
Volatility isn’t going away, and being properly positioned will help you weather the storm.
If you’re heavily invested in mutual funds, remember that these funds have to follow their own guidelines. If they’re focused on small-cap stocks, they can’t switch to a safer sector when times get tough. (Learn more about that here)
It’s a bit like telling my son to clean his room. He could ignore it, but sooner or later, the consequences will catch up to him. The same is true for your investments. Don’t panic and move everything to cash, but do make sure you’re set up to ride out the ups and downs.
Wrapping Up
Just like life’s lessons about consequences, the market teaches us every day that there are reactions to every action. And while we can’t predict every twist and turn, we can make choices that help us stay on course. Whether you’re preparing for retirement, managing your portfolio, or just trying to understand what’s happening in the world of finance, now is the time to act thoughtfully and seek guidance if you need it.
Feel free to reach out if you want to discuss to adjust your strategy for the months ahead (or how we are already do that for you).. We’re here to help you avoid the negative consequences while positioning you for the positive ones!
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