FPW Market Update: October 2022

October 4, 2022 | Josh Zorger, CFP®, Fortitude Private Wealth

Receiving regular communication from your advisor is important, but it is of greater importance during times of increased market volatility. The following is an excerpt taken from the most recent newsletter sent exclusively to clients of Fortitude Private Wealth.

Market Update – Interest Rate Increases Are Causing Financial Instability

The main reason for the increased volatility in the financial markets this year is because of the aggressive interest rate hikes and withdrawal of liquidity from the financial system by the US Federal Reserve. It is difficult to believe, but interest rates were at ZERO to start the year and the key Federal Funds Lending Rate now sits at 3.25%. The rate of change or the speed that the Fed has increased interest rates this year has never been faster.

These aggressive rate hikes by the Federal Reserve were implemented to slow inflation, which has reached 40-year highs. By increasing interest rates this quickly, the Fed hopes to decrease inflation by lowering consumer demand or slowing economic growth. They are also removing excess stimulus or liquidity from the financial system. Both actions are causing bond yields to rise dramatically and the US Dollar to increase at a parabolic pace.

Aggressive Interest Rate Hikes = Lower Bond Prices

The increase in bond yields this year is causing bond prices to drop at a historic pace. The 10-Year US Treasury Yield has increased by +160% since the beginning of the year from 1.50% to a recent high of 3.99%. The 2-Year US Treasury Yield has increased by +475% since the beginning of the year from 0.73% to a recent high of 4.30%. Last September, the 2-Year US Treasury Yield was only 0.28%! How bad has 2022 been for the US Bond market? This year marks the worst year since the 1930's for the US Bond market. Through 9/30/22, the US Bloomberg Aggregate Bond Index ¹ was down -14.65% this year. To give you an idea of how bad this is, the second worst year on record for the US Bond market was a loss of -2.92% in 1994.

This information should be used for educational purposes only and is not intended to be specific investment planning, retirement planning or tax planning advice. We recommend that you consult with a professional tax advisor or qualified plan consultant before implementing any of the options presented.

This excerpt of the Fortitude Private Wealth newsletter, including all the information contained herein, may not be copied, reproduced, republished, or posted in whole or in part, in any form without the prior written consent of Fortitude Private Wealth.

¹ The Bloomberg Aggregate Bond Index is a broad-based fixed-income index used to measure the relative performance of the US investment-grade bond market. The index is comprised of investment-grade government and corporate bonds. Fixed Income investments are subject to credit, market and interest rate risk if sold prior to maturity. Fixed income values will decline as interest rates rise.

Josh Zorger, CFP®, is the founder and president of Fortitude Private Wealth in Carmel, IN.

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