The stock market has rebounded back very nicely this week from the correction that we saw the week before. I continue to get asked what happened and will it happen again. It's important to keep things in perspective.
The stock market hadn't seen a correction in two years and we went the longest ever stretch without a 3 or 5 percent correction. What we've seen over the last two years is the anomaly, not the last two weeks.
I'm expecting that we'll see continued volatility in the stock market throughout the year. On one hand the economy is doing well. There are plenty of jobs (more than people to fill them) and now people have a few more nickels in their pocket due to the tax cuts. But, on the other hand, due to competition for workers, employers will soon have to start paying more. This will force them to think about raising prices charged for their good or service. This typically leads to costs going up across the board, or inflation.
In order to combat inflation, the Federal Reserve has said that they will raise interest rates and shrink the assets they own. This should have the effect of tapping the brakes on economic activity. If businesses and consumers have to pay more to borrow money, will they continue to spend like they have been? So, in effect, will the Federal Reserve tap just enough or hit the brakes too hard, pushing us into a recession?
That's the tug of war that we are facing.
Like I wrote last week, we can't control any of this. What we can do is make sure that we are prepared and have our own financial life put together. This is a great time to look at your own balance sheet. What do you own? What do you owe? Do you have enough in reserves to handle an economic bump?
As always, feel free to call if you have any questions or you or anyone that you know want help doing an inventory of your financial life.
I hope that you can get out and enjoy this spring like weather!