GOLDEN VALLEY, Minn.- Investors are assessing the anticipated policies of a new President in Washington as well as what impact a Fed interest rate move may have on their personal finances and nest egg. With us to discuss is Dan Ament, Financial Advisor with Morgan Stanley.

  • Post-election Outlook for Investors - Markets have greeted Donald Trump’s upset election with the euphoria of regime change, discounting that the potential end of Washington gridlock will unleash a pro-growth agenda. This has driven material portfolio repositioning with stocks winning over US Treasuries, cyclicals dominating defensives, the value style trouncing growth and importantly, domestically levered companies favored over those dependent on trade. The narrative is that a debt-fueled fiscal program will drive improvements in jobs and economic output while generating higher interest rates, higher inflation and thus a stronger US dollar, a mix that is assumed to be disastrous for the emerging market (EM) equities, which have weakened by 6% since Nov. 8.
  • Fed Rate Increase in December? – In the minutes from the Federal Open Market Committee's November meeting, policymakers appeared confident the economy was strengthening enough to warrant interest rate increases soon. All eyes are on the next meeting is set for Dec. 13-14.
  • Review your debts and make a plan – An estimated 90-130 million people who hold various debt could be impacted by an increase in rates by the Fed. If you have debt that will be negatively impacted by rising rates, assess the potential financial cost to you as a result of an increase in rates. Depending on the impact, look for ways to pay down or convert variable rate debt into a fixed loan.
  • Savers hope for higher rates ­– Interest rates on bank savings, money markets and CDs typically float in relationship with the level of the Fed Funds rate. The historically low interest rates experienced over the past eight years has penalized § many who hold cash preservation investments. As a referenced, the Fed Funds rate was 4.75% in Sept 2008 compared to 0.25-0.50% today.
  • Impact for bond investors – Generally speaking, as market interest rates rise, bond value decline. The impact will vary depending on the type of bonds you hold (i.e. government, corporate, etc.) as well as the duration (length of time until maturity). It is important for investors holding bond investments to understand the allocation of their income investments and consider strategies to best weather a modestly rising rate environment.

Morgan Stanley ‘Positioning’ Market Report