Broker Check

Interest Rate Move Prepardness

| September 12, 2016
Interest Rates

The stock market has been eerily quiet of late. Through the market close on September 8th, the S&P had not moved up or down 1.0% in a single day for 51 straight trading days. You have to go all the way back to the fall of 1995 to find another period with comparably low volatility.[1]

What a difference a day makes…welcome to September! On Friday, September 9th, the Dow and S&P posted their biggest one-day loss since the day after the Brexit vote. The cause of the decline was attributed to Federal Reserve member comments that suggested that an interest rate hike could come in the next few weeks.

The resulting selloff was indiscriminate. Equities went down. So did bonds. Gold was down too. Here’s a quick look:

S&P down 2.45%

NASDAQ down 2.54%

10 year US Treasury bond yield up to 1.675%.

Going back to 1928, September has been the single worst month for stocks.[2] Add a potential interest rate hike plus a tight presidential race and you have the makings of a very volatile fall.

Five steps you should take

  1. Identify all of your interest-rate sensitive holdings including REITs, dividend stocks and bonds. If you have sizable gains, it may be time to rebalance your portfolio.
  2. If you own bonds through a mutual fund or ETF, make sure you understand the concept of “Duration.” It will help you estimate the potential loss should rates rise.
  3. Consider adding low correlation investments to your portfolio.
  4. Volatility creates opportunity. Make monthly contributions to your investment accounts to smooth-out the highs and the lows of the market.
  5. Call me for no obligation consultation.

Volatility should be expected when investing. The muted volatility of the last few years is historically abnormal and is attributable to an incredibly accommodative Federal Reserve. Don’t let volatility shake you from your long-term plan. You have a financial plan, right?