Since the July Fed rate hike announcement, equities have risen higher and intermediate- to long-term yields have dropped. Many investors are convinced that the Fed’s comments after the Federal Open Market Committee (FOMC) meeting on July 27, 2022, in addition to the negative economic readings, indicate that the Fed may be close to a pivot “in order to curtail the risk of recession.” Other analysts believe that the Fed is nowhere near pivoting and further outsized rate hikes are necessary to tame inflation, which is still running extremely hot.(7) As the market increasingly is dependent on Fed decisions, ironically, negative economic news may drive rates lower but lead to higher inflation and vice versa for positive economic news.
During times of market uncertainty, many investors might consider it prudent to protect a portion of their assets with Stable Value. Because Stable Value is a capital preservation option in a defined-contribution (DC) plan with regular ongoing contributions, those contributions get invested at higher yields as rates rise, helping to mitigate the impact of the rate increases on the portfolio and the crediting rate. For DC plan participants, Stable Value provides full liquidity, principal protection, and a guaranteed interest rate.