Market Volatility is Back as Fed Hints at More Rate Hikes

stock market interest rates hike

Earlier this year, equity analysts started reaching for the Motrin again as market volatility came back to town. After a prolonged period of growth, U.S. stocks began charting a new path of ups and downs.

Scores of commentators observed the change in market winds. Even Jack Bogle, founder of Vanguard, said the newfound market swings were unlike anything he had ever seen in his 60-plus years of investing. "I have never seen a market this volatile to this extent in my career," he said in an appearance on the CNBC show "Power Lunch."

And now, this volatility trend seems to have continued. Last week, on October 10, the Dow Jones fell more than 800 points. It was the largest drop since February 2018. Meanwhile, the S&P 500 declined 3.3% and the Nasdaq fell 4%, according to CNBC reporter Fred Imbert.

Then on Wednesday, October 17, the market took a slight stumble as the Federal Reserve released the minutes from its September meeting. A month earlier, Fed board members approved a quarter-point hike to the central bank’s benchmark rate, setting a new rate range of 2% to 2.25%.

The minutes indicate that future rate hikes may be ahead. According to meeting records, Fed officials believe that "further gradual increases in the target range for the federal funds rate would be most likely consistent with a sustained economic expansion, strong labor market conditions, and inflation near 2 percent over the medium term." 

Market Responds to Continuing Rate Hike Agenda

The rate hike was the Fed’s third for 2018, and its eighth rate hike overall since December 2015. Beforehand, Fed officials hadn’t raised rates for nearly a decade in an effort to help spurn economic recovery in the aftermath of 2007 to 2009.

According to Imbert, the Dow dropped 91 points very soon after the Fed meeting minutes were released to the public.

“The 30-stock index dropped 91.74 points to 25,706.68 as sharp losses in IBM offset strong gains in Goldman Sachs,” Imbert notes. And as for its other index counterparts, the “S&P 500 and the Nasdaq closed just below the flatline at 2,809.21 and 7,642.70, respectively.”

“The major averages closed well off their session lows, however,” he continues. “The Dow fell as much as 319.26 points, while the S&P 500 and [the] Nasdaq both dropped at least 1 percent at their lows of the day.”

Interest Rates Continue Heating Up

From there, reports of strong corporate earnings helped buoy U.S. stocks against other risk factors, including political uncertainty at home, a weakened housing market, and geopolitical tensions with the Middle East as well as with China.

However, rising interest rates continued to be a factor for investors, according to CNBC reporter Michelle Wolf. She observes how a selloff in stocks quickened after the release of the Fed’s meeting minutes.

Apart from the Fed’s continued commitment to rate hikes, rising Treasury note yields seem to have attracted some investors looking for safety. Earlier in the month, the 10-Year Treasury note yield had eclipsed 3.1% and as of this writing closed at 3.202%.  

“Stocks rose in early trading Friday [ Editor’s Note: Friday is today, October 19] but by midday had pared those gains and even turned negative for awhile,” she writes. “The action followed a sharp downturn in equities this week thanks to fears of rapidly rising interest rates and a possible global economic shutdown.”

By Thursday, market losses were hitting the high single-digits, with the Dow posting two-day losses of nearly 1,400 points. Or in other metrics, a 5.2% drop.

Stock Selloff Not Yet Over? Chief Strategist Weighs In

According to Liz Ann Sonders, chief investment strategist of Charles Schwab, we may have a case of déjà vu.

In an appearance on CNBC, she speculated as to whether the selloff wave was over yet. Instead of crossing the finish line, Sonders explained, the situation might be akin to what investors faced in February. In other words, it could be like when equities approached correction territory earlier this year.

“It wouldn’t surprise me to see us in a similar situation as we were in January and February where you hit that kind of full 10% correction,” Sonders commented while on the “Fast Money Halftime Report.”

Still, if market activity in January and February proved to be the biggest outlier, the October selloff could be pretty tame, considering it’s a midterm election year, she cautioned. Post-World War II, the average decline in stocks in those years is 17%, according to Sonders.

“This would have been a pretty mild one if what we saw in January and February was the maximum drawdown,” she said.

What Does This Mean for Retirement Income Security?

When it comes to retirement, Americans face different needs than when they are in their working years.

Full-time employment and entrepreneurship are some of the primary income sources for working-age households. But they generally are less active income sources for retired persons. Because retirement generally means a slowdown in activity, retirees turn to other income sources – like portfolios and wealth they have accumulated over time – to supplement their cash-flow needs.

According to the Bureau of Labor Statistics, the typical retiree household relies upon different kinds of passive income as its second primary income stream after payments from Social Security, private and government pensions. Those passive sources include:

  • Interest earnings
  • Dividend payments
  • Rental estate income
  • Income from other properties

Financial risks such as sequence of returns risk can be detrimental to people whose income security depends on the performance of their portfolios. When certain income streams help you foot the bills for monthly living expenses, variances in cash-flow can be disruptive to how you manage to cover those expenditures.

There are just as many predictions as to when markets might correct as there are pundits, analysts, and commentators to make those predictions.

Here's an important question for retired and near-retired Americans to consider: “With the stage you are at in your life and career, how many market pullbacks could you potentially come back from?”

And other questions to answer include: “Does your financial plan include strategies to manage risks to your income – or your potential future income?” and “Are there any other steps you can take to increase your chances of enjoying a comfortable, secure retirement lifestyle?”

Making the Most of Your Retirement Financial Resources

Good news! You may be able to answer these questions (and perhaps with more confidence) through assistance from a financial professional. They can help you evaluate your current retirement financial strategy, identify any potential income gaps or other financial risks, and determine if you can take any other steps toward more income certainty.

If you are ready for guidance, connect with a financial professional at Use our “Find a Financial Professional” section to locate someone and contact them directly. Should you need a personal referral, call us at 877.476.9723.

Proud Member

 FBIC LogoHorizSOFA Logo1

Contact Info

Safe Money Broadcasting Home no glow img

1107 Key Plaza #450
Key West FL, 33040-4077

Find a Financial Professional

bottom map