Navigating Market Fluctuations: The Impact of Government, Tech Advances, and Interest Rates on Your Financial Future

Unlock the secrets of navigating market fluctuations in our latest episode of Better Financial Health in 15 Minutes or Less. As we explore the transformative impact of the Trump administration on the economy, we'll reveal how efforts to streamline government operations could both curb inflation and adjust government spending. Will the potential extension of tax cuts inject new life into the markets, or do historical deficits threaten to derail progress? Join me, Stacey Hyde, as I tackle these complex dynamics and what they mean for your financial future.

Our conversation doesn't stop there. We delve into the tech sector's recent rollercoaster ride, driven by unexpected advancements in China's AI capabilities. Drawing a parallel with the tech boom of the late '90s, we explore the necessity for diversification and adaptability in today’s market landscape. From Amazon's journey from bookseller to cloud computing giant, to the anticipated volatility as markets adjust to reduced government spending, we provide insights into what’s ahead. All this while keeping a keen eye on interest rate trends and how they might influence your investment returns in the coming years. Don’t miss out on this insightful discussion that promises to prepare you for the financial road ahead.

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Transcript

Speaker 1: 0:00

Hi, I'm Stacey Hyde and I'm back with another episode of Better Financial Health in 15 Minutes or Less, and today I'd like to talk about something that I've gotten a couple questions about is how is the Trump administration going to impact the markets? And it really kind of doesn't matter what side of the political aisle you're on, presidencies and administrations have an impact on our economy, and I think that there's a couple of things going on with the Trump administration. So you have Elon Musk's Doge, where they're trying to get the government to act more efficiently, which, in a lot of ways, is good. As we look at how our tax dollars are spent, we certainly want to be getting the most out of them, because it's really sort of sad and depressing to think about our hard-earned tax dollars going and being wasted. So I think that that is important also to control the size of the government and make it work for us as best it can. And that's important because we actually have historical deficits right now, and deficits and government spending cause inflation, and inflation is really bad, not just because it raises the cost of goods and services, which is definitely bad, but as it gets sort of people expect inflation, then that causes prices to go up even more. So it's a really bad cycle that we really need to break. The bad part is to break it. Oftentimes that does slow down the economy, because government spending does help it grow. I mean, we certainly saw the government spending help lift us out of the COVID slowdown, but the problem is all the additional spending that went on top of that, the bills that followed on, really added to government spending, government debt, and sort of pushed us into an inflationary environment. So we've got to kind of get that out and get the economy back on standard footing.

Speaker 1: 2:24

Now there are other things that could be very good for markets. There's been a lot of talk about whether the tax cuts that are scheduled to expire at the end of this year will be extended. While we don't know, I think it's likely that they will be extended and, if so, that should be good for the economy. But we also, as I record this on Tuesday, the 28th, we are coming off of a very bad day in the market, particularly around tech stocks. Okay, china's AI app has gotten great grades on a lot of the websites that sort of pit a chat GPT. So much of what has been built out thus far has been using, like nvidia chips and things of that nature, and so the thought was that you had to have those high end, more expensive chips in order to compete, and china didn't really have those or have as many of those, and the fact that they created an AI that is actually quite popular was sort of caught everybody by surprise and caused some real turmoil in the market.

Speaker 1: 4:04

Now, what you have to look at that is yes, do we think AI is going to be great? Absolutely, but I think it's a bit like technology stocks in around 2000, 99, 2000. Yes, the internet has certainly changed everything and losers and we don't really know right now. Some can look good and may not be able to stand the test of time. Some are going to continue to do well, and I think that that's important to keep in mind. It's not that all AI or technology stocks are going to do well. Some will, some will for a time, and then there'll be somebody else that comes along, and I think that that's important. And you also have to look at earnings and what's going on with earnings and diversity. You know, you got to remember Amazon started out as a bookseller and now they are the largest host of cloud computing with Amazon Web Services, but you know personally, I mostly interact with them on buying stuff on Amazon. So it is important that these different companies are out there and are participating in AI, some greater than others. But at the end of the day, I think that returns this year and in the next couple of years are likely to be below what we've seen over the last couple of years, just because if the markets do continue to sort of settle down, to get used to not having the government spending, then I think that we will well, it'll be bumpier, I think we're going to be okay.

Speaker 1: 6:00

And also, interest rates. We have to keep in mind the 10-year treasuries, you know, ranging from 4.5 to 4.7. Well, yes, that's a lot higher than two. It's also a lot healthier for the economy as far as people can actually earn money on their balances and it's taken out some of the excesses that we're building when credit really didn't cost anything. And so and it's important because, as interest rates stay in this sort of historically low but higher than they've been for the last decade or so, as they stay in that area, it keeps the debt service that the federal government has to pay, the interest that they have to pay. It keeps that down, which is important. As a taxpayer, you want that to be minimized. So I do think that interest rates are really not going to go down a lot, even if the Fed drops rates. We may see shorter term rates drop a bit, but I think, think on the whole, I think we're sort of where we are with interest rates.

Speaker 1: 7:15

Now, that's my personal opinion. I could be completely wrong. We can come back and look at this a year from now and see what we said, but I think that that is a reason to have some equities in your portfolio, also have some fixedities in your portfolio, also have some fixed income in your portfolio. At the end of the day, I'm cautiously optimistic about what's going to happen with the economy. I think we're going to kind of keep rolling along okay, but it won't be as great as it has been the last couple of years. So that's my market thoughts for 2025. I'm Stacey Hyde and this is another episode of Better Financial Health in 15 minutes or less.