INSIGHTS

October 11, 2022

Q & Amy

Fourth Edition

Angus: Amy, could you touch on some of the unique circumstances equity and bond investors have faced this year?

Amy: First, let’s tackle the bond market. Rising interest rates depress bond prices resulting in negative bond returns. On the positive side, investors can expect higher income from their bond portfolio as we advance.

Focused on the labor recovery after the pandemic, the Fed was slow to react to inflation. Typically, the Fed isn’t increasing interest rates in a slowing economy, and as a result, bond and stock prices have fallen simultaneously.

Angus: Why are stock prices falling?

Amy Bush, CFA

Chief Investment Officer

C. Angus Schaal, CFP®

Senior Managing Director

Amy: During the pandemic, fiscal and monetary authorities stimulated the economy, pushing inflation to unhealthy levels. As a result, the Fed must increase interest rates to slow the demand of consumers and businesses. These higher costs translate to lower valuations for most companies.

Currently, investors are in the process of determining the appropriate market valuation. It is creating volatility.

Angus: When will the Fed stop increasing interest rates?

Amy: The Fed would like a meaningful and consistent slowdown in the monthly inflation indicators. We are starting to see the results of the Fed’s action now, yet higher rates take time to filter through the economy. Since inflation is a lagging indicator, the Fed may not stop raising interest rates until the economy has slowed or unemployment rises. The market expects the Fed to stop this cycle in the early part of next year. It is a difficult task balancing inflation and growth, but the process is necessary to get the economy in a healthy position before the next expansion.

Early in the year, Tandem’s investment process indicated it was time to become more defensive. We will likely maintain this posture until the Fed changes its restrictive policy and stops raising rates.

Risk and volatility are a part of investing because the economy is cyclical. Market turbulence can make even the most experienced investors uncomfortable.

It is essential during market volatility to 1) resist the urge to sell at lower levels based on market movements, and 2) take a long-term view, remembering the reason we invest is to sustain our standard of living into the future.

Don’t hesitate to contact us if you have concerns or questions as we move toward recovery.

Disclosures

Tandem Wealth Advisors LLC (“Tandem”) is an SEC-registered investment adviser.

The information published herein is provided for informational purposes only and does not constitute an offer of investment advisory services. All information is subject to change without notice. Nothing contained herein constitutes financial, legal, tax, or other advice. No investment process is free of risk, and investors may lose all their investments. Past performance is not indicative of current or future performance and is not a guarantee. The opinions expressed in this document may not fit your risk and return preferences. The information provided is obtained from sources believed to be reliable, but we cannot attest to its accuracy. Past performance is not necessarily indicative of future returns.

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