September 19, 2024
DALLAS (BP) – Though markets are uneasy, a financial analyst with GuideStone Financial Resources urges calm.
The confluence of high inflation, a weak labor report and the unwinding of a carry trade with roots in Japan has caused financial markets in the United States and around the world to shudder.
“The Federal Reserve’s mandate is price stability and full employment,” said Josh Chastant, portfolio manager for GuideStone.
Last week’s poor jobs report caused concerns that consumers’ buying power will be limited in the months ahead. That, along with high inflation rates, caused U.S. financial markets to decline 1,000 points last week, and world markets reacted based on elevated concerns that the U.S. could be headed toward a recession.
By midday Monday (Aug. 5), the Dow Jones Industrial Average had dipped by nearly another 1,000 points, and the NASDAQ had dropped by around 500 points.
“At the end of last year the odds for recessions from major economists were quite high,” Chastant said.
“Then that went basically to zero with no one expecting recession and now we’re starting to see folks start to pick up their calls for a potential recession over the next year or so,” he said, adding that third-party economists are now saying there is a 15 to 25 percent likelihood of a recession.
What is a carry trade?
Chastant described a carry trade as when a person or company borrows money at “a very low interest rate … and they reinvest those assets into risk assets.”
In this case, investors are feeling the pinch as the Bank of Japan had a long history of not raising interest rates, and many American investors capitalized on the opportunity.
Last week, the Bank of Japan raised its interested rates by a quarter percent, the highest amount in 15 years, according to Business Insider.
The Fed, meanwhile, will closely monitor key economic reports, including ones focused on inflation and the labor market, prior to its meeting in order to determine whether a rate cut is appropriate
While there are apparent reasons for those watching the markets to be concerned, Chastant said, “Stock market corrections happen every single year.”
Have a plan and stick with it
As the markets adjust during an election year, Chastant told Baptist Press, “I think that everyone can prepare for a little bit more volatility.”
For individuals managing their assets, “If you have a plan, stick with the plan and don’t get rattled by individual day-to-day kind of price movements in the overall investment markets,” he said.
He advised churches to prepare for “a lot of ups and downs … over the next year or so.”
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The story was first published by Baptist Press.
