Ask A Trust Officer

Falling Interest Rates

Dear Trust Officer:

When the Fed cut interest rates at the end of July, the stock indices fell.  I thought lower interest rates were good for stock prices?  What’s going on?  Should I be worried about my portfolio?  - Worried Investor

 

Dear Worried, 

Two factors seem to have been at work to produce this unexpected result. Some market watchers apparently had hoped for a half point rate cut, and were disappointed when it was only a quarter point. Then the comments of Fed Chairman Jerome Powell explaining the Fed’s thinking were evidently unexpected, as he warned that there may not be additional rate cuts this year.

Some observers wondered why the Fed lowered rates at all, given the current low unemployment, strong economy, and record stock prices. There is some uncertainty, however, about the effect that the tariffs will have on global trade, as well as uncertainty about the effects of Brexit now that Britain’s Prime Minister has pledged to leave the EU with or without an agreement. The rate cut now is seen as “insurance” against a future downturn in the global economy.

Although these factors do not seem to be a cause for immediate worry, eternal vigilance is the price of successful portfolio management. To be truly worry free, consider outsourcing your portfolio management to us. This is a service we provide on a full time basis. Give us a call to learn more.

 

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