Inverted Yield Curve + Inflation = Stay the Course

shutterstock_2142112923

Inverted Yield Curve + Inflation = Stay the Course

Last week, the yield curve inverted for the first time since August 2019 (as
a refresher, a yield curve inversion means that long-term interest rates have dropped below short-term rates).

Why do we pay attention to this?

Because this inversion suggests that investors believe the near-term economy to be riskier than the long-term.

This recent inversion in the yield curve and inflation soaring above 7% have left some investors wondering whether to adjust their investment strategy. While it can be tempting to worry and want to rush and make changes, the current environment is cause for monitoring, not cause for panic.

Yes, rising interest rates, high inflation, surging oil prices, and geopolitical tensions have helped contribute to economic uncertainty. And because financial markets don’t like uncertainty, they have been performing accordingly.

U.S. inflation clocked in at 7.9% for the 12 months ended February 2022 — the highest rate since December 1981. Energy prices, already on the rise, jumped when Russia invaded Ukraine. In response, the Federal Reserve started raising interest rates, hoping to slow the economy without triggering a recession.

Higher interest rates can be negative for the stock market, as the cost of doing business rises for some companies, potentially impacting their growth rates. However, Bloomberg data shows that in each of the last eight hiking cycles, stock prices were higher a year after the first increase. Of course, past performance is never a guarantee of future results.

Fixed-income securities can be particularly sensitive to interest rate increases due to the inverse relationship between bond yields and prices. Despite increased short-term volatility, it’s important to remember the role fixed-income plays in your portfolio – diversification, preservation of capital, and income.

So in a nutshell = Stay the Course

As your financial advisor, I’m here to help you navigate these choppy waters and keep you on track to pursue your goals. Rest assured, I will continue to monitor your investments and make adjustments if necessary.

If you have questions, you know I’m just a phone call or email away.

Talk to you soon.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2022 FMG Suite.

Dr. Jason Van Duyn
586-731-6020
AQuest Wealth Strategies
President

Dr. Jason Van Duyn CFP®, ChFC, CLU, MBA is a Registered Representative with and Securities and Advisory Services offered through LPL Financial, a Registered Investment Advisor. Member FINRA & SIPC. The LPL Financial registered representative associated with this site may only discuss and/or transact securities business with residents of the following states: IN, IL, TX, MI, NC, AZ, VA, FL, OH and CO.

Feel free to share this with your friends on social media or email

Share on facebook
Facebook
Share on twitter
Twitter
Share on linkedin
LinkedIn
Share on email
Email

Preparing For Anything

Preparing For Anything Did you know September is National Preparedness Month? This event promoted by FEMA guides Americans in ensuring their families and communities are

Read More »

A Look at Diversification

A Look at Diversification Ancient Chinese merchants were said to have developed a unique way to manage their risk. They would divide their shipments among

Read More »

1% Moves in S&P 500

1% Moves in S&P 500 If you’ve felt like stock prices were a little more volatile in 2022 than in recent years, your “spidey senses”

Read More »