As investors anxiously await the Federal Reserve’s next move, Wells Fargo is warning that the stock market could be in for a rough ride in the coming months. The bank is predicting that more Fed rate hikes are on the way, which could potentially send stock prices tumbling.
The Fed has already raised interest rates once this year and is expected to do so again in the coming months as part of its effort to keep inflation under control. While higher rates can be good for the economy overall, they can be bad news for stocks, as companies struggle to finance their operations and investors seek out safer havens.
According to Wells Fargo’s Chief Investment Officer, Darrell Cronk, investors should start preparing for this scenario sooner rather than later. As Cronk explained, “We’re going to continue to have interest rates rise, and as that happens, there will be a point in time where that starts to squeeze the equity market.”
While the market may be jittery about the prospect of higher rates, Cronk believes that it’s not necessarily all bad news for stocks. He notes that a return to more normal levels of interest rates will help to stabilize the market over the long term, by reducing the risk of inflation and setting the stage for sustainable economic growth.
However, for investors who are not prepared for higher rates, the short-term outlook may be rocky. As Cronk warns, “I think the market needs to start to prepare for the fact that we’re going to have a bit more volatility, we’re going to have some sell-offs, and we’re going to have some corrections.”
To be prepared for these eventualities, investors should focus on building a diversified portfolio that includes both stocks and bonds. This will help to cushion the blow of any market downturns, while also providing opportunities for growth as the economy continues to expand.
Ultimately, the key message from Wells Fargo is that investors should be proactive in preparing for the next phase of the economic cycle. While a period of higher rates may be challenging in the short term, it is ultimately a positive development that will help to lay the groundwork for a stronger and more stable economy in the years to come.