2018 has been a somewhat volatile year for the financial markets. At times surging above an eight percent gain, and earlier in the year suffering a ten percent loss, the U.S. stock market has garnered pessimism among investors and business.
What does the rest of the summer hold in store? Read on to find out.
Rising Interest Rates
The federal interest rate is currently at 1.75 percent and projected to rise another three to four times by 2020. There will probably be another rate hike this summer, and again in the fall. 2018 will probably end with a projected 2.25 percent interest rate going into 2019. This isn’t all bad, however.
The biggest upside to higher interest rates is that interest-bearing accounts can create additional sources of income. When interest rates are low, there is less incentive to save, but when rates rise, consumers and businesses alike have opportunities to make their money work harder. Money-market accounts, CDs, and U.S. treasuries have excellent yields, currently at around two percent. It may not sound like much, but it adds up.
Economic and Jobs Report
Many economists and businesses watch Washington closely for the monthly jobs report announcement. Investors care about these reports because strong job numbers and low unemployment correlates to higher consumer spending, economic growth, and a positive financial forecast.
The current unemployment rate is 3.8 percent, the lowest since the early 2000s. The U.S. economy also added more than 220,000 jobs in a range of industries. These gains are expected to continue into next year, although a sharp increase in hourly wages or a more marked drop in unemployment could stem fear.
Political winds blowing from Washington have the power to influence the financial markets, for better or worse. Current fears over potential trade wars with China and the EU are stemmed by most investors’ confidence in the markets, but this could change. Also unclear is the looming election cycle this fall; if Democrats retake control of either side of Congress, expect the markets to react.
The current stock market represents the second-longest bull market in history. How long can it last before a bubble bursts? That’s uncertain; however, many experts believe the S&P 500 will still end the year about nine percent higher than its current levels. Positivity is up, but volatility is expected to remain high, too.
Short-term investors should remain positive this summer and take advantage of higher stock prices and interest rates. Long-term investors have little to worry about; even when the market drops, with some advance planning, they can take advantage of the lows. An investing strategy called dollar-cost averaging smooths out the purchase price of investments.
Both short- and long-term investors alike can benefit from spreading money across a range of different assets and investing regularly. Some experts suggest investing in international stocks in the absence of a fully diversified portfolio. As with all investing, patience and due diligence are key.
Did you know that Naden/Lean has a team of professionals qualified to help you make sound investing decisions? NL Financial Services is a team of financial advisors and CPAs who can integrate financial planning and tax planning into one strategy. For questions on the stock market, investing, or any long-term financial plans, contact NL Financial today.