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God Save the Queen

As the world mourns the passing of Queen Elizabeth II, we remember her legacy as the longest-serving monarch of the United Kingdom and look ahead to the new reign of her son, King Charles III, including what changes it could bring. Changes in leadership and regimes are common throughout history.  By studying history we can learn from the past, and while history has a tendency to repeat itself, it is very rarely exactly the same. This is also true in the financial markets.    

Unlike changes in leadership which often are measured in years or decades, financial markets change rather quickly and are affected by many variables, most notably the economy.  (As a quick reminder, the stock market and the economy are not one and the same.)  A mistake often made by investors is to think markets will behave in the same manner as they did in the past or that certain assets will maintain the same relationships, or cross-correlations, as they did previously. We are seeing a lot of this presently but caution this thinking can lead to costly investment mistakes.  For example, parallels are being drawn between this year’s stock market behavior and past downturns, most notably the tech bust of 2001-2002 and the financial crisis of 2007-2008, or for those that remember, the late 1970s and early 1980s.  But none of those are exactly the same as what we are experiencing now and therefore investment strategies which worked in the past may not work as well today. 

Looking back at the events listed previously, certain aspects of what we are dealing with in the present are similar, but there are also differences.  For example, we have seen a big pullback in the prices of technology stocks, especially those that are “profitless,” as we did in 2001-2002, but at that time most tech companies were not profitable whereas many tech companies are extremely profitable today.  So far, we are not experiencing a financial crisis, as we did in 2007-2008.  During both of those times unemployment was not as low  as it is now and we were not dealing with high inflation and rising interest rates. As a matter of fact, interest rates were falling so bonds provided some protection from a falling stock market; that is not the case today. 

The economy and markets have evolved since those events and with present-day technology, events happen much faster.  Information is disseminated much more quickly and so pricing in the markets has become more efficient.  Looking further back to the 1970s and early 1980s, the markets were not nearly as advanced and unemployment was considerably higher.  Inflation and interest rates were also higher and had been for some time.  The economic situation today may be most like that period of time, however even though interest rates were moving higher, they had been much higher than what we have experienced in recent years so the impact from rising interest rates was not nearly as dramatic as it is now. 

Mind the Gap

Last week was a good week for the stock market with each of the major averages up more than 2.5%, snapping a three-week losing streak in which the S&P 500 lost nearly 8.5%.  There was not much news to drive the bounce, except the possibility of what traders call “oversold” conditions and depressed investor sentiment, which often is a contrarian indicator for the markets.  In other words, at some point investors get tired of selling and start buying, pushing the market higher.  Positive drivers for the market include the possibility of reaching peak inflation, resilience in consumer spending and corporate profits, and solid macroeconomic data, particularly in the U.S. labor market.  However, there are also suggestions that last week’s mini-rally is nothing more than a bear market bounce since expectations remain the Fed will continue to aggressively raise interest rates, which increases the odds of a recession, bringing with it slowing global growth and risks to corporate earnings. 

With the almost certainty of higher interest rates and strong possibility of a recession on the horizon, we expect the markets to remain volatile.  This is why it is critical to have part of your portfolio protected to ensure your income remains intact.  Do not let a market downturn and deep loss in portfolio value have an adverse long-term effect on your income and lifestyle; make sure there is not a gap in your income and investment planning. 

Looking Ahead

This will be a busy week in terms of economic releases which have the potential to drive markets and contribute to further volatility.  The highlight will be the release of the Consumer Price Index (CPI) numbers on Tuesday.  Expectations are for an increase in prices of about 8% compared to a year ago.  There have been reports of used car prices dropping and we have seen energy prices fall recently so it may not come as a surprise if the price index drops in comparison to last month.  Prices remain much higher than they were a year ago so even if the headline number comes in lower than expected, inflation is very likely to remain well above the Fed’s comfort zone and it is doubtful anything in this report will derail the Fed from raising interest rates during their upcoming meeting next week.  Current expectations are for a three-quarter point (0.75%) hike but if CPI comes in considerably below expectations, showing a strong deceleration, that could end up being only a half-point (0.50%) rate hike. 

Other economic releases this week include Producer Price Index (PPI) and retail sales.  So far, consumer spending has remained fairly robust, helping prop up the economy.  Signs of weakness in consumer spending could be an ominous sign for the broader economy but since unemployment remains low and wages continue to increase, we do not view this as being likely over the next few months. 

Like changes in country’s leaders, markets change over time.  While there may be some similarities with past events, conditions today are very different than what has been experienced in the past so be sure your portfolio is invested appropriately, and your income plan remains intact. We expect volatility to continue so if you do not feel comfortable now, it is unlikely you will feel more comfortable anytime soon. This is a good time to visit with us about your goals and ensure you feel secure in your retirement. 

We would like to extend an exclusive invitation to our next TaxSmart™ Summit on Thursday, October 13th with Becky Ruby Swansburg.  Becky spent her early career working in Washington, D.C. with members of Congress and the White House under the second Bush administration.  Her work on tax policy and America’s savings habits turned her attention to the urgent needs of today’s retirees.  With her policy background and extensive retirement planning knowledge, Becky provides a wealth of information.  If you want to learn ways to help protect and position your retirement assets for long-term success, no matter what future market and tax conditions may bring, you will not want to miss this event.  Call our office now to reserve your seat. 

Have a wonderful week!

Nathan Zeller, CFA, CFP®

Chief Investment Strategist
Secured Retirement

Please contact us if you would like to review your individual financial plan or learn how the TaxSmart™ Retirement Program can help you.   

Office phone # 952-460-3260

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Danielle Christensen


Danielle is dedicated to serving clients to achieve their retirement goals. As a Paraplanner, Danielle helps the advisors with the administrative side of preparing and documenting meetings. She is a graduate of the College of St. Benedict, with a degree in Business Administration and began working with Secured Retirement in May of 2023.

Danielle is a lifelong Minnesotan and currently resides in Farmington with her boyfriend and their senior rescue pittie/American Bulldog mix, Tukka.  In her free time, Danielle enjoys attending concerts and traveling. She is also an avid fan of the Minnesota Wild and loves to be at as many games as possible during the season!