Wealth Management Prep

when does the fed raise rates?

rising inflation or expected rising inflation, strong job market, strong economic growth and spending

when does the fed cut rates?

inflation falling towards 2%, weakening job market, slow growth or recession risk, financial stress

What is your outlook on the market?

CPI data

What happened in the markets in the last five years?

• AI launched in 2022

• S&P and Nasdaq reached record highs

• rising inflation due to covid-19

• market still resilient despite this

yield curve types

• Normal (upward sloping): Longer loans pay higher yields than shorter ones. This makes sense because if you lock your money up for 10 years, you want to be paid more for the extra time and uncertainty. This is the usual shape in a healthy economy.

• Flat: Short-term and long-term yields are about the same. This often signals uncertainty or a transition.

• Inverted: Short-term yields are higher than long-term yields. This is unusual, and it gets a lot of attention.

inverted yield curve

When the Fed raises short-term rates to fight inflation, short-term yields go up. Meanwhile, investors who expect the economy to slow (and the Fed to cut rates later) buy long-term bonds, which pushes long-term yields down. When short-term yields end up above long-term yields, the curve inverts.

Historically, inversions have often come before recessions, so it’s treated as a warning sign.

If I was a client that got $100m in a liquidity event, how would you approach investing my money?

How would you approach determining an investment strategy for a new client? What steps would you take?

What is an industry you’re interested in or a stock/company within that industry?

How will the bond market be affected if the Fed cuts rates?

if the fed cuts rates, bond prices will go up (inverse relationship)

How has the stock market been performing?

If I had a 10-15 year investment horizon, assuming equities would be within my risk tolerance, how would you tell me to invest?

Do you want to be an advisor? Are you considering this career long-term?

How does a bank make money?

How do you stay up to date with the markets?

what is the inflation rate?

What could potential indicators be that would worry the Fed about keeping rates high?

what is diversification?

how are bonds currently doing?

how are stocks currently doing?

how are commodities currently doing?

how are alternatives doing?

federal funds rate changes

Inflation too high → Fed raises rates → borrowing gets expensive → growth slows → inflation falls. Economy weakens → Fed cuts rates → borrowing gets cheaper → growth picks up.

job market

165k jobs were added in October, higher employment means more spending, but could mean inflation