Lately, I am amazed how often people take time to ask my opinion on what to invest in the stock market.
The primary reason is their savings are not earning them anything and they are starting to see inflation’s impact. Usually it is too much money chasing too few objects.
It causes prices to rise on consumable items. We currently find there is demand, but the problem is that products cannot reach the market.
It will impact the holiday season and may extend far beyond that point.
I have spoken with some of my friends who operate restaurants and they say that due to rising labor costs and supplies, they will raise their prices. This can become a systemic situation that feeds on itself.
In the 1970s, we chased rising CD rates as an investment tool.
Those rates climbed to nearly 20% and the inflation rate was right behind.
During the middle of the 70s, the stock market did only one thing and that was to go down.
It took years for the bear market to correct.
I am not implying that will be the case this time, but runaway inflation can be a real problem.
One of my big concerns is that the only real throttle on inflation is interest rates.
We have enjoyed remarkably low rates now for almost a decade.
It is logical that people are putting their savings to work in the stock market as debt pays such a low return.
I am a firm believer that there is room to raise rates where the impact won’t be that significant.
Of course there is a point where people will pull money and transfer to debt.
I would suggest that such a level is around 3%.
I am amazed that the thought of climbing to a mere 2% would be significant and I defer to what I have seen in my life.
We have been able to move forward economically with rates double 3%.
It is just going to a process for people to get used to rates that are higher than what they’ve become accustomed to dealing with.
That leads me to my continuing belief that I don’t see the market dropping off a cliff, but this last quarter is set up for great volatility.
Never forget that in March of 2020, we watched the market dive and it recovered within three months.
I believe that is an anomaly.
A correction is not the end of the world and is a natural part of market trends. Of importance will be whether investors over react - not like how people today over react to anything almost daily.
I would quote Aaron Rodgers and ask people to relax.
Stay alert but don’t panic.
Opportunity is always just around the corner.
