Borrowing

Market Moves, Rate Hikes and How Trump's Plans Could Hit Your Wallet

Stacy Rapacon

In our new series, we’re breaking down the latest financial news—and what it all means for your money.

Number of the Week: 20,000

Hi, high! The Dow Jones industrial average has risen nearly every day from its close on November 4 through November 22, when it hit a record 19,014. Many analysts are predicting it will break 20,000 this year, the first time it’s hit that milestone in its 120-year history.

Stocks Go Up, Bonds Fall Down

The stock market recovered from its election-night tumble to hit new highs this week. Credit Trump’s pro-business stance, which raised expectations he’ll cut corporate taxes and roll back regulations, both seen as good for businesses’ bottom lines. Trump also said he’ll push for an increase in infrastructure and defense spending, which gave stocks in those sectors a boost. As stocks rose, though, the bond market fell, in part because of concerns about inflation and rising rates. (When rates go up, bond prices go down.)

So, what? The post-election adjustments are still in progress. US stocks are up, bond prices are down. The dollar is up, but precious metals and emerging market stocks are down. Which means… Looking at your portfolio’s daily moves may give you motion sickness. 

Bottom line: Just because the market’s been reacting (or overreacting) to every headline doesn’t mean you need to do the same. If you’re well-diversified, with a mix of stocks and bonds, stay the course. Focus on your long-term investing goals and stick with the strategy you devised to reach them.

Your Credit Card Debt May Be Getting More Expensive

On Thursday, Federal Reserve Chair Janet Yellen testified before Congress, saying: “At this stage, I do think the economy is making very good progress toward our goals.” Translation: Expect the Fed to raise interest rates at the central bank’s next meeting in mid-December.

So, what? Banks and lenders use the federal funds rate to figure out how much to charge you for things like auto loans, mortgages and credit card debt. So when the Fed raises rates, debt gets more expensive—especially if it has a variable rate. On the plus side, savers could benefit from rising rates, assuming banks pass on that increase to their customers. (But don’t bet on it.)

Investors could be affected, too. When interest rates go up, bond prices go down. Stocks might also react poorly down the road if companies curb spending due to the higher cost of borrowing. But that’s a big maybe.

Bottom line: Chill. The hike is likely to be minimal—probably just 25 to 50 basis points (.25 to .50). And an expected increase shouldn’t do much damage to the markets or your bottom line. If you’ve got a lot of credit card debt with a variable rate, though, it’d be smart to focus on paying that down. Rates are expected to go up more next year, which could make the interest you’re paying on that balance go up, too.

Trump’s 60 Minutes

On November 13, President-elect Donald Trump went on “60 Minutes” for his first TV interview since winning the election, and confirmed that health care and tax reform would be top priorities for his administration.

So, what? Trump has promised a potential repeal (or, at the least, dismantling) of the Affordable Care Act. He’s also announced several tax proposals, including: more than doubling the standard deduction, introducing a large deduction for childcare costs, and moving from seven to three federal income tax brackets. 

 

Bottom line: On average, households at all income levels will likely get some tax relief under Trump’s proposals, many of which are likely to pass in some form, but the highest-income households will receive the largest cuts. The nonpartisan Tax Policy Center projects that about 47 percent of the benefits will go to the highest-earning 1 percent of Americans.

It’s also likely that changes will be made to the Affordable Care Act, but it may not go away altogether. In his interview, Trump clarified, for example, that he’s in favor of the provisions that allow people to stay on their parents’ insurance plans to age 26 and ensure those with pre-existing conditions remain covered. (We’ll be breaking down more of Trump’s proposals, how likely they are to pass and what they mean for you in the coming weeks.)

SEC You Later

The current head of the Securities and Exchange Commission, Mary Jo White, announced plans to step down from her position in January, two years shy of the official end of her term. She was expected to head out regardless of the election results to allow the new president to appoint a new chair.

So, what? White’s exit opens a path for Trump to loosen rules on Wall Street and undo financial reforms implemented in reaction to the Great Recession.

To lead the transition, he appointed Paul Atkins, a former regulator who leans away from heavy regulation. (Financial policy analyst Ian Katz described Atkins as someone “who wants to let companies do their thing and not get in the way very much.”) Also on the team is hedge fund manager Anthony Scaramucci, who told The New York Times that the SEC head needs “to end the demonization of Wall Street.”

Bottom line: The financial reform legislation known as Dodd-Frank may get dismantled, for better or worse. So far, the expectation for looser reins on financial companies has been a boon for the stock market. But it’s not clear what lies ahead.

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