Business & Finance

Press Releases

Pending Recession?

5ab8c7505ee9678d34ee_d93b84d353f8e9898c5b_CMW_GroupOutside1.jpg
Chatham Wealth Management team Credits: CWM
5bac0eb18f83d271185f_Screen_Shot_2015-11-17_at_11.45.31_AM.jpg
The chart shows the typical indicators one would examine if they were concerned an economic recession was imminent. Credits: *Source: Bloomberg, National Bureau of Economic Research, Bureau of Economic Analysis, Bureau of Labor Statistics, Federal Reserve Bank
a943a2d93f825b191541_Screen_Shot_2015-11-17_at_11.46.09_AM.jpg
Chatham Wealth has gone back and analyzed past periods of rising rates, looking for why stocks have done so well. Credits: Lord Abbett
5ab8c7505ee9678d34ee_d93b84d353f8e9898c5b_CMW_GroupOutside1.jpg

Pending Recession?                                 

November 2015- Many clients and friends I speak with seem to believe that the current stock market rally will end very shortly and a recession is right around the corner. We do not believe this is the case for a number of reasons.

Recessions are usually triggered when the economy overheats and the Fed raises rates too quickly. The economy is far from overheating. With inflation running between 1.6% and 1.8%, we are pretty comfortable we won’t experience rampant inflation anytime soon.

Sign Up for E-News

Will the Fed raise rates? If they do, will higher rates be negative for stocks? 

The timing of a rate hike is of little importance, but we do feel that the economy is strong enough to raise rates. In fact we predict the Federal Reserve Board will raise rates at their December meeting. 

This projected rate hike from 25 basis points to 50 basis points is almost meaningless. It is more symbolic of an economy that was sick and can now stand on its own two feet.

We’ve spent some time looking at the potential impact of rising interest rates on investor portfolios, and how markets historically have overstated the path of interest rates. Investors should not be concerned about the first rate hike. Looking at historic averages, there is plenty of time before we have to be concerned with negative growth. We continue to believe that individual stocks with good business models, management, and strong balance sheets make sense. With all things being equal, history tells us that companies with the ability to raise dividends, outperform stocks that either can’t raise or don’t pay dividends.

The takeaway: Federal Reserve (Fed) interest rate increases historically have been positive for stock prices. The data table below provided by Lord Abbett shows how different types of asset classes performed in a rising rate environment. Stocks performed well in each cycle and clearly were the best asset class to own. Note that longer maturity fixed rate bonds clearly underperform in these types of markets.

We’ve gone back and analyzed past periods of rising rates looking for why stocks have done so well. What we found was markets historically have overstated their predictions of how high rates will go, and how quickly interest rates would rise. We feel that the current projected path of rates once again overstates both the likely path and quickness. Once the investment community becomes more comfortable with this idea, they will be more optimistic about holding stocks in a relatively benign interest rate environment.

For more information please visit us on the web at Chathamwealth.com, call us (800) 472-8086, or send us an email at info@Chathamwealth.com. We offer free portfolio reviews. Please contact us to make an appointment. You can also view our videos at http://www.chathamwealth.com/cwm-team/ and http://www.chathamwealth.com/message-from-cwm-president/

TAP Into Another Town's News:

You May Also Be Interested In

Sign Up for E-News

Madison

F.M. Kirby Children’s Center of the Madison Area YMCA Students Sing, Dance and Laugh to the Music of Lovey Williams

April 16, 2018

Lovey Williams created joyful noise and music with the students of the F.M. Kirby Children’s Center of the Madison Area YMCA to kick off the Week of the Young Child that runs through Friday April 20. Students engaged in music by singing, dancing and playing instruments to their favorite songs at their annual Lovey Williams Concert. The Week of the Young Child celebrates early learning, ...

Letter to the Editor: Don't Complain. Vote!

April 14, 2018

Don’t Complain; Vote!

It’s no secret that people have strong feelings about what’s happening in our country. It’s also true that much of politics is local. In November, 11th District residents will have the opportunity to choose a new congressional representative who will not only serve as a critical check on the federal level, but also determine how our distract fares ...