In this environment, Stable Value will continue to serve its role as a principal protection product, sheltering a portion of 401(k) assets at a guaranteed crediting rate for participants. ![]() (9) Both of the scenarios above regarding how the yield curve may normalize will likely involve significant volatility and large potential losses to risk assets. We are now at the point where even Fed Chairman Jerome Powell is admitting that a soft landing is looking less and less likely. quotes and the associated capabilities, including charts, search and timeseries. Historically, only the first scenario has occurred in the US due to the US Dollar’s reserve currency status. Browse Refinitivs Money Market (MM) Pricing Data, and benefit from our. If the second scenario occurs, Money Markets may prolong their yield advantage over Stable Value funds until intermediate- term rates rise above short- term rates and existing Stable Value assets mature and are reinvested. If the first scenario occurs and the US enters recession and cuts rates, then Money Market fund yields will drop, and Stable Value funds will quickly revert to their historical outperformance. Which of these scenarios plays out will determine the relative value of Money Market funds and Stable Value funds. In the second, either inflation outlook expectations are permanently anchored higher, and thus the market comes to believe that the central bank must keep rates higher for a very long period of time, or the country experiences a currency crisis and higher rates are required to prevent capital flight. In the first scenario, short- term rates come down as a result of the central bank cutting rates to counteract any economic slowdown. There are only two ways in which the yield curve can normalize, either short- term rates can come down or long- term rates can rise. Yield curve inversions are abnormal and do not persist for a substantial period of time. Third quarter 2022 was the first time that Money Market funds out credited Stable Value since 2006. The inverted yield curve is also starting to affect the relative value of Stable Value funds as compared to Money Market funds. Both have seen dramatic erosion in their purchasing power since inflation started running hot. The chart below compares the growth of $100 invested in both Stable Value and Money Market for the 10-year period ending, adjusted for inflation. (1) The inflation rate remains stubbornly high at 7.7% year over year for October, although it did moderate a bit from the 9.1% reading back in June. The Federal Reserve raised the federal funds rate by another 0.75% on November 2, bringing the rate to a range of 3.75% to 4.00%. The use of the term "advisor(s)" throughout this site shall refer to both investment advisors and broker dealers as a collective term.Our quarterly review of the market examines the effects of the inflation rate and inverted yield curve on both asset classes and anticipates how either of two yield curve normalization scenarios might determine their relative value going forward. Contact Fidelity for a prospectus or a summary prospectus, if available, containing this information. FIAM products and services may be presented by FDC LLC, a non-exclusive financial intermediary affiliated with FIAM and compensated for such services.īefore investing have your client consider the funds', variable investment products', or exchange traded products' investment objectives, risks, charges, and expenses. registered investment adviser, or Fidelity Institutional Asset Management Trust Company, a New Hampshire trust company. Fidelity Institutional Asset Management (FIAM) investment management services and products are managed by the Fidelity Investments companies of FIAM LLC, a U.S. Registered investment products (including mutual funds and ETFs) and collective investment trusts managed by Fidelity Management Trust Company (FMTC) are offered by Fidelity Distributors Company LLC (FDC LLC), a registered broker-dealer. ![]() Fidelity and its representatives may have a conflict of interest in the products or services mentioned in these materials because they have a financial interest in them, and receive compensation, directly or indirectly, in connection with the management, distribution, and /or servicing of these products or services, including Fidelity funds, certain third-party funds and products, and certain investment services. Fidelity does not provide legal or tax advice.īefore making any investment decisions, you should consult with your own professional advisers and take into account all of the particular facts and circumstances of your individual situation. Information provided in, and presentation of, this document are for informational and educational purposes only and are not a recommendation to take any particular action, or any action at all, nor an offer or solicitation to buy or sell any securities or services presented.
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