If the last few days of headlines have felt like a lot, you're not alone. Conflict in the Middle East, a Fed meeting this week, a fresh debate over artificial intelligence, and midterm elections coming into view all at once. It's a busy news cycle. I wanted to take a few minutes to walk through what's actually happening, what we've already done about it in your portfolio, and why none of it changes our long term approach.
Interest Rates: A Widely Expected Move
The Fed's policy committee meets Tuesday and Wednesday, and most economists expect a quarter point increase when the meeting wraps up. That can sound alarming, but we've been here before, and more recently than people remember. In 2022 the Fed raised rates seven times in a single year, the fastest pace since the early 1980s. It was uncomfortable, but the market and the economy got through it. Going back to 1994, stocks have weathered an initial Fed rate increase six separate times. In most cases they dipped modestly for a few months, then recovered and finished higher a year later.
Today looks different from 2022 in many ways: growth is steady and employment is healthy, That may make the economy less sensitive to Fed moves than it used to be.
Inflation: The Number vs. The Feeling
Official inflation is still running above the Fed's 2% target. While 2% is the report, I know that number doesn't match what we all feel. There's a real gap between what inflation is on paper and what it feels like in real life. If the temperature says it's 74 degrees, but it feels like it's 86, then in my opinion, it's 86 degrees.
This morning I thought about my own grocery bill, specifically my morning coffee. In 2021, a container of Folgers was $7.99 to $9.99. That same exact container is $17.99 to $19.99 today. Those are 100% real dollars being spent. Also worth noting, the national average price of diesel has now risen above $6 per gallon for the first time ever. That cost doesn't just stay with the trucking company, it gets passed straight through to the price of everything that arrives on a truck.
The official number and the lived experience aren't always telling the same story, and it's worth naming that instead of pretending everything's fine.
Your Portfolio: Strategic First, Tactical When It Makes Sense
We recently rebalanced portfolios to stay in line with long term objectives. Strategic long term goals have not changed. While the core of investments remains the same, when the outside economic and market environment changes, that gives us the opportunity to move tactically. In essence, look for smaller opportunities that may provide more upside. Making massive changes, like moving everything into cash, should not be our reaction to headlines.
A lot of these smaller allocation trades happen behind the scenes. Inside the mutual funds portfolios hold, professional managers are actively buying, selling, and adjusting every day. We don't see each trade, but that management is working on your behalf around the clock and acting on research retail investors may never see.
AI Headlines: Two Sides of the Same Coin
You may have seen this week's news about leading AI companies calling for a more measured pace of development, which briefly unsettled tech and semiconductor stocks. It's a good reminder that any single sector, however exciting, can add volatility to a portfolio that leans too heavily on it. At the same time, the broader investment boom in AI and data centers remains one of the more powerful tailwinds for economic growth right now, supporting business investment, productivity, and so far, corporate earnings. Both things can be true at once. Near term noise and a longer term driver of growth.
The Election: Some Volatility, No Clear Signal
Midterms are about seven weeks out, and history says the run up tends to bring more volatility than usual, mostly from uncertainty over policy rather than who wins. That uncertainty has historically faded fast once the outcome is known. Looking back to 1938, the twelve months following a midterm election have seen the S&P 500 finish higher roughly 95% of the time. We don't make portfolio decisions based on predicting elections, and we'd encourage you not to either.
Where This Leaves Us
None of this changes our approach. We build portfolios to withstand periods like this one, not to guess the next headline. If you'd like to talk through how your portfolio is positioned given everything above, or just want a second opinion on something you read, reach out. I'm always happy to talk.
IMPORTANT DISCLOSURES
This communication is for general informational purposes only and does not constitute personalized investment, tax, or legal advice. It does not take into account your specific objectives, financial situation, or needs. Opinions expressed are current as of the date above, are subject to change without notice, and may not come to pass. Past performance is no guarantee of future results, and all investing involves risk, including possible loss of principal. Any index performance referenced is for illustrative purposes only; indexes are unmanaged and cannot be invested in directly. This material was informed in part by research from LPL Financial and other public sources believed to be reliable, but accuracy is not guaranteed. Please consult your financial, tax, and legal advisors before making any decisions based on this information.