Over the weekend, markets have been digesting several news events that are turning the tide in investor sentiment. For most of the year, stocks have been up, bonds have been up, and the U.S. dollar has been steady.
But then recent events include: Federal Reserve Chairman saying that he will begin tapering off the quantitative easing program of buying bonds to keep interest rates low, China is going through jitters over banking liquidity, the Bank of Japan may be losing control of the country’s interest rates, gold has fallen 34% from a year ago, and finally, long-term interest rates have risen faster than any time since 1962 along the entire yield curve (maturity dates for bonds 30 year, 20 year, 10 year, 5 year, etc.).
The combination of these events have prompted investors to re-adjust their outlook to a new investing landscape. A future with rising interest rates and all that may flow from it: downward pressure on the stock market, downward pressure on the bond market, a slowing housing market, and a rising U.S. dollar. Suddenly, over the weekend these scenarios are being talked about and priced into assets. What are all of the scenarios that your portfolio prepared for?