Prices go up, stocks are soaring, and everyone seems to have more money. After everyone goes to bed, we wake up and wonder, “what happened?”
The markets are a complete mess right now. And the Federal Reserve is doing its best to clean things up. It is a tedious and necessary chore.
Last year, everything went up — real estate, bonds, stocks, crypto. This year, everything is down (some things more than others). Aside from oil stocks and cash, there was no place to hide.
This is truly a bear market for almost everything.
Comparatively speaking, dividend stocks have been a “safe space” — or at least better than many bond funds. We’ve been skeptical about the bond market since last year.
Meanwhile, some segments of the stock market have collapsed. For example, the Nasdaq 100 is down over -31%. The time to sell and raise cash was last December. This is not the time. We are much closer to the market bottom than the top.
Here are my notes on the current situation:
1. We’ve seen interest rates like this before.
Interest rates on mortgages are now above 6% and real estate prices peaked in June. I’m hearing more stories about home purchase deals not closing and buyers getting cold feet.
Looking at the big picture, 6 to 8% mortgage rates are historically normal. I’m not expecting a crash for housing. But prices are going to be stagnant for a while.
2. History repeats itself, but things are better now.
It feels a lot like the 1970s again. Inflation is back and geopolitical tensions are high.
But were are in a much better place. Unemployment is a mere 3%. In the 1970s it was 6 to 7%. Interest rates were MUCH higher.
3. The Federal Reserve created this mess; it will clean it up.
We can’t blame inflation on oil prices (which are at the same levels they were a year ago), supply chain issues, or the Russian invasion of Ukraine.
The reason why we have inflation today is because the Federal Reserve and the US government over-stimulated the US economy during COVID. The amount of money in the system is 30% higher since January of 2020. All that cash needed to go somewhere — and it went into higher prices for just about everything.
4. Cash yields are getting worthwhile.
Some of the safest investments are finally worth holding. Rates on money market funds, savings accounts, and CDs are all better than they were just three months ago.
These are only a short-term solution as long as inflation remains high.
5. Market worries will pass.
Vanguard recently issued a forecast of 5% annual returns for the stock market over the next 10 years. This is not very exciting, but still much better than what we saw during 2000 to 2010.
When will things get better? We are still in a high-risk period for the market. From a cyclical perspective, my best guess is that stocks may start to stabilize by the end of October. This coming spring, I’d expect things to feel much more “normal” again.
And a little more normal is sounding good right now.
Before you go...
Please consider supporting Technical.ly to keep our independent journalism strong. Unlike most business-focused media outlets, we don’t have a paywall. Instead, we count on your personal and organizational support.
3 ways to support our work:- Contribute to the Journalism Fund. Charitable giving ensures our information remains free and accessible for residents to discover workforce programs and entrepreneurship pathways. This includes philanthropic grants and individual tax-deductible donations from readers like you.
- Use our Preferred Partners. Our directory of vetted providers offers high-quality recommendations for services our readers need, and each referral supports our journalism.
- Use our services. If you need entrepreneurs and tech leaders to buy your services, are seeking technologists to hire or want more professionals to know about your ecosystem, Technical.ly has the biggest and most engaged audience in the mid-Atlantic. We help companies tell their stories and answer big questions to meet and serve our community.
Join our growing Slack community
Join 5,000 tech professionals and entrepreneurs in our community Slack today!