Last week was turbulent on Wall Street and the market news has continued to be grim. It was the stock market's fifth straight weekly decline.
The pullback came as investors balanced a strong U.S. jobs report against worries the Federal Reserve may cause a recession in its drive to halt inflation and the ongoing war in Ukraine. Most analysts are pointing towards a worrisome inflation rate and rising interest rates for the investment struggles.
Job growth in the U.S. held steady however, as employers added 428,000 new jobs in April. The unemployment rate stayed unchanged at 3.6%, according to the newest report.
Jill Schlesinger, CBS News Business Analyst and host of Jill on Money, says it’s a very conflicted economy right now but investors should be wary especially when keeping an eye on those retirement accounts.
“It does not feel good for me to tell you, hang on,” Schlesinger told WCCO’s Vineeta Sawkar on the Morning News. “Don't panic, don't scream don't shout. But it's worrisome when you see pretty much everything in your retirement account, go down at once.”
Schlesinger adds that it is odd to see not just stock futures, but the bond markets dropping all at the same time.
“That can be a scary thing” explains Schlesinger. “This is all about this central question that we keep talking about her, and I’m sorry if you're bored with this, but it's the same storyline. It's ‘will the Fed be able to thread this needle?’ What is the needle that we're trying to thread? On one end, we know that we've got high inflation and the Fed is trying to increase interest rates to tamp down prices. That's really what they're doing. Going to slow the economy down, then prices follow suit. And you know, if they do that, that's great. We get kind of this place where we've been in an economy that's been growing very quickly since the pandemic sort of froze everything over.
We've been growing, we got high prices. They raise rates, things come down gently. That's what people call the soft landing.”
But what if the Fed doesn’t “cool down” the economy enough?
“Then we as consumers and businesses will take matters into our own hands,” Schlesinger tells WCCO. “We will actually stop spending as much. And that could cause a big slowdown.”
The other angle to consider is what happens if the Fed raises interest rates by too much. Schlesinger says that could cause a recession.
“That's why all these assets are just dropping, because people in the professional investment community are just freaked out and they don't know what's going to happen,” says Schlesinger. “And so sometimes when you don't know what's going to happen, the, the answer is, sell, go to cash.”
There is still the positive news for the economy with the jobs report. Employers adding 428,000 jobs in April does point to strength. Schlesinger says that on Wall Street, that’s almost looked at as a bad thing at this time, which seems counter-intuitive.
“The problem is almost that it would be better if the jobs report showed a little bit less robust numbers, because then we could say things are slowing down,” Schlesinger explains. “The Fed stuff is working. But you know, frankly, if companies are still scrambling to hire people, that means their businesses are still good. It means the economy is still hot. It means that that workers are going to be demanding higher wages. All of this is actually not great news for the Fed. The Fed wouldn't mind it if the job market cooled off a little bit. They wouldn't mind it if all the sudden, instead of having all those job openings, that job openings basically go down. That the labor market sort of settles back into a couple hundred thousand jobs in a month. I think that the fed would like that. Almost like it was too good in a weird way.”
While the economy, the stock and bond markets, and the job situation settles, what does Schlesinger think individual investors should do? For the most part, the answer is ride it out.
“I think what you need to focus on is what you can control,” Schlesinger told WCCO’s Vineeta Sawkar. “I would say this, let's talk about sort of two different types of folks. We have the people who don't need their money for decades. Even if you're 50-years old and you're going to retire when you're 60, you're not going to need all of your money at once. You need your money to last you for decades in the future. So even if you're kind of near retirement or younger, this is not a bad thing for you. Your shares are down for your bond funds, your stock funds. You can purchase them at lower levels and you're in good shape.”
Schlesinger does add that if you are already retired, then this is a little bit more worrisome. She says there are ways to counteract the wobbles of the market and it’s a strategy that you should have already embraced.
“In this respect, if you can avoid pulling money out of your retirement account, then it would be really better,” she says. “If you could just sort of let things alone. If you need money within 12 months, whether you're retired or not retired, if you need money from your portfolio, it never should have been at risk in the first place. And in that case, you're going to have to sell whatever you need in the next 12 months. Maybe you're doing a big home renovation and it's happening faster than you thought. Maybe you've got to write a tuition check. Maybe you just need cash to live on. If that is the case, whatever you need within the next 12 months, get it out of anything.
That's risky. Either a bond or a stock fund is risky. I don't care if it's just a little bit of risk, not all the money you need in 12 months can be at risk.”
The biggest mistake people do is make a knee jerk reaction to the market according to Schlesinger.
“I mean, this is human nature. You see movement in the markets. You're worried. You feel like you should do something. It’s like, ‘don't just sit there, do something.’ And I'm saying, ‘don't just do something. Sit there.’”
Jill on Money can be heard Saturday nights at 8:00 p.m. on WCCO Radio.
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