The stock market is at all-time highs. Interest rates are near two-decade highs. And war is driving oil prices over $100. 

These are all coexisting in the same place. Something’s got to give here. 

In this week’s Market Alert, we explain why next week’s Fed meeting could be so important, why the tech and AI stocks carrying the market are especially vulnerable to higher interest rates, and why a 10% to 20% correction may be a very real possibility. 

If you’re within five years of retirement or in the first five years of retirement, a major loss could change your life. Watch the video to learn why we believe you should invest, yes, but you should protect as well. 

• The Fed meets next week, and for the first time in a long time, they’re talking about potentially raising interest rates. For two solid years, everybody assumed rates were going down. Now, the next move is probably going to be up, and that is a significant change. 

• The war in Iran is escalating, pushing oil prices over $100. Higher oil prices mean higher inflation, which pushes the Fed further toward raising interest rates. 

• We’re already seeing the impact. Mortgage rates hit a 14-month high, and higher rates mean higher costs for mortgages, car loans and everything else. That’s a bad thing for the consumer and the economy. 

• But here’s the really big one when it comes to the stock market: more than 40% of the S&P 500 is concentrated in the tech and AI companies that have driven the market to all-time highs. 

• Those companies are borrowing enormous amounts of money to build data centers and drive their growth. If the cost of money goes up, that could squeeze their profits and potentially lead to a 10% to 20% market correction. 

• Am I calling for a big, bad bear market like 2008 or Y2K? At this point, no. The economy seems to be good and jobs are strong. But we need to fasten our seatbelts and be ready for a correction. 

• Think about where we are: the stock market is at all-time highs, interest rates are near two-decade highs, and a war is driving oil over $100. These are all coexisting in the same place. Something’s got to give here. 

• Paul Tudor Jones famously believes that your job as an investor is not to make the most money. Your job is to lose the least. If you lose the least, you win. 

• We believe the same thing. You should invest, yes, but you should also have a strategy to protect your retirement. 

• We saw what happened in Y2K. The internet really was the future, but many of those stocks still collapsed, and the overall market fell about 50%. It took roughly five and a half years just to get back to even. 

• If you’re about to retire or already retired, five years is a long time to wait. If your retirement is 25 good years and five years of that is gone, you just lost 20% of your entire retirement life. 

• So we want to protect your retirement from catastrophic losses if we can. We believe you should Invest and Protect. 

Transcript:

Hello, everyone. Thanks for joining us. This is Money Matters with Ken Moraife, and this is the weekly market alert video for Friday, September 18th. Now, what you’ll notice is I am Jordan Roach. I’m the chief investment officer, uh, of our sponsor, which is Retirement Plan of America, and also you’ll notice that Ken is not here.

Ken is actually doing the fun stuff, maybe sad in some respects. He’s off to marry his last or youngest daughter. So I have two girls of my own. I can only imagine, uh, what he’s thinking right now, the highs, the lows, the sadness, the excitement. So please send your well wishes to Ken Now for this week, we have a lot to get through.

It’s– And it’s all gonna be about the Fed, of course. Um, this week on Wednesday, the Fed had a meeting decision on interest rates, and for the first time in three years, the Fed raised rates. Okay. We’ve gone up from three point five to three point seven five to point two five percent higher, twenty-five basis points.

And what do we see immediately? The stock market fell. Long-term treasury rates went up. So today, we’re gonna talk about why the Fed did what it did, some comments they made, what it means maybe for the stock and bond market going forward and the economy, and of course, what it might mean for your retirement.

So let’s get into it. So like I just said, you know, the, the Fed for the first time in three years raised interest rates after what we thought the backdrop coming into this year was we’re gonna see two, three, maybe four cuts, right? Borrowing is gonna get cheaper. We’re gonna normalize kinda to what we’ve been seeing over the last fifteen years.

But this is something that we’ve alluded to for a long time, that we might actually get an environment where those never happen. Maybe the market got ahead of itself leading into the year that we could see so many cuts, given that we had the backdrop of tariffs, we had then Iran kick off all these things.

And what did we get? We got firm concrete evidence we’re hiking again. Okay? And so Chairman, you know, Warsh was pretty blunt, though, about the reasons. He basically said is price stability is their number one goal, and the Fed’s got two mandates. It’s price stability, which basically means taming inflation, and then they have kind of the growth mechanism, right, and wages.

And so I actually think this is probably good that they’re more focused on the inflation side of things, price stability, than the growth mechanism of wages. Um, but it was very clear what they said. And right now, the Fed voted unanimously to raise rates, and that’s also been a key point. Over this year, we’ve seen dissension, disagreement, we’ve seen split votes.

Um, you know, we’ve seen differing opinions at the time of whether we’re gonna hold rates, cut ’em or, or hike ’em. This was unanimous, right? So everybody was in lockstep that right now to tame inflation, to bring price stability back towards their target, we need to raise rates. And again, what we saw there is, uh, the market immediately did not like that.

Okay? Now, what comes next? Well, the Fed’s gonna meet two more times this year. We’re gonna meet in late, or they’re gonna meet in late October, then again in December. And right now, they’ve basically already alluded to maybe, you know, at least one more hike, okay, probably point two five percent a year. So the market is already saying, “Okay, first hike in three years, another one coming, maybe one or two even next year.”

And so that’s a completely new regime, again, the market’s having to think through relative to maybe twelve months ago, certainly relative to six months ago or nine months ago. All right, so what is that gonna mean maybe for your money? Well, 5% is, is a, a really key rate, and 5% is what I’m kind of tying to the 10-year Treasury mark.

That is an important benchmark for how credit cards are priced, mortgages, auto loans, a number of things, right? It is, it is basically the world benchmark, um, for borrowing costs. And so we’re getting effectively to a 14-month high, or in some way, in some ways, this is hi- close to where we were in 2007, okay?

And what we’re seeing immediately is, again, you know, going to 5% on the 10-year, short-term rates also creeping up, longer-term rates coming up. You know, our view is the, the economy, at least in the short term, and the market can probably deal with that. But it is important to know because 5% now means we have competition on the stock side of things, right?

If somebody can lend money to the US government, which is effectively the gold standard of a risk-free return, at 5% Well, how attractive are stocks? Especially expensive stocks. And so that’s something we’ll talk about, um, more as we go. The other side of this is, you know, when raising rates, is this really gonna even tame inflation at all?

Or is some of this inflation coming in because of the war, and that subsides, inflation goes away, then why did the Fed even do this? Okay. But again, what we’ve seen is rates come back up. And so it’ll be interesting to see that if the tenure continues to stay towards five percent, despite the Fed’s narrative of we’re doing this for price stability, is that actually gonna squeeze the economy a little bit, slow things down?

Because again, on paper, in theory, mortgage rates, mortgages getting more expensive, cars get more expensive, access to credit tightens. It’s more difficult. So we’ll see. And again, we’ll see what that means for stocks because when, when bonds, the safe money, can pay you five percent, all of a sudden on the stock side of things, well, you certainly need to demand a premium over five percent.

And so it’ll be im- it’ll be interesting to see over the coming months, do we start seeing some rotation in the market? Some of these high-flying tech names, these very expensive, highly valued companies, are they gonna be as, as priced as high given where rates are? Typically, what I would expect to see over the coming months is now the market might rotate still in the t- technology side, but for companies that have a lot of free cash flow, generate their own cash, healthy balance sheets.

Because again, borrowing at five percent becomes expensive, okay? So fundamentals might become more and more important as we get more mid to the end of the cycle, and that’s something certainly we’re gonna watch out for along what we see in October, December, and then next year, probably towards the end of Q1.

So a lot to think through. Again, this is a new regime for the market, new in the fact that new relative to where we thought we would be coming into this year. Right, we are back in a hiking cycle. What we would expect, you know, typically is, again, at five percent in a first hike, the market can probably absorb this.

But given that we have two more Fed meetings, we have midterms around the side, we’ve, you know, have already had, you know, two, three really good years back to back, we would expect some volatility, okay? And so the important thing for us is, again, what we’re not saying is all these things are doom and gloom and we need to run to the sidelines.

No, we’re not saying that. But we wanna be mindful of where we are, okay? And that’s again why we’re glad we have our strategy to allow us to kind of move and stay in the markets, but be ready should things move. And that was a key element from somebody who I’ve studied a lot, which is Paul Tudor Jones, who’s a very famous investor that sidestepped nineteen eighty-seven, is the fact that defense can be your best offense, okay?

And so we’re not saying we’re gonna go enact defensive measures right now. We’re just saying we wanna be mindful because we think the next year could be very, very interesting. Okay? So that’s all for the Fed right now. Again, we’ll have a lot more to talk about in basically a month from now. We’re gonna have time to see how the market actually digests.

Do yields stay high, or do they come back down now that maybe the, the Fed has demonstrated some level of credibility? A lot to see. Okay? Now, one important note that I do wanna talk about here is what we’re gonna call our Third Thursday webinars. Okay? These are something new that we’re trying to do, right, for further education around key topics like estate planning, long-term care, cybersecurity, Social Security, I mean, all sorts of things.

And in fact, yesterday, uh, we had one of those on estate planning. Okay? So please sign up for those. You can go to our website, rpoa.com, uh, and get more information on the future, on future events that we’re gonna have. For next month’s, by the way, it’s gonna be Ken and I, and we’re gonna be really be diving deep into all of this, right?

So that’s our– That one once a quarter is our investment meeting, our investment update, and we’re gonna be going into, again, more about rates, about what the Fed’s gonna do, what this means for your investments, for our strategy, how we’re gonna position the things we’re working on internally, and much more.

So please, for all of these, uh, invite your friends, invite your family. Uh, we certainly enjoy doing this, um, and talking to you about how we’re trying to, again, improve our strategy, safeguard your retirement, and all of those things. So that’s all for today. Thanks for tuning in and look forward to seeing you soon.

Retirement Planners of America, rpoa.com

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