The theme this week on the Retirement Quick Tips Podcast is: Don’t Fight The Fed

Today, I’m talking about Why Fed Policy influences the stock market

• “In the stock market, as with horse racing, money makes the mare go. Monetary conditions exert an enormous influence on stock prices. Indeed, the monetary climate—primarily the trend in interest rates and Federal Reserve policy—is the dominant factor in determining the stock market’s major direction. Once established, the trend typically lasts from one to three years.” - Martin Zweig, Winning on Wall Street
• I didn’t appreciate this until 2018. That year, the Fed raised interest rates 4 times. They were all small .25% rate increases to combat inflation that had started to creep higher and a really tight job market. They were essentially trying to get ahead of a potentially overheating economy with a few small increases. 
• The stock market did not like it one bit - the S&P 500 lost 6.24% in 2018, with the steepest losses coming right at the end of year. 
• What was the primary driver of the losses in 2018? A change in Fed rate policy to raise interest rates. As an advisor who had experienced only an interest rate environment where rates remained near zero, I had little appreciation for how rising interest rates negatively impact the stock market. That all changed in 2018…

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast.  

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance