Wading Through Financial Stability Risks: An Action Plan


By: George Smith, CFA, Portfolio Strategist, LPL Financial, Jeffrey Buchbinder, CFA, Chief Equity Strategist, LPL Financial, & Lawrence Gillum, CFA, Fixed Income Strategist, LPL Financial

The Federal Reserve (Fed) has a history of raising short-term interest rates until something “breaks.” Considering the Fed has raised rates from a near-zero level to 4.75% (upper bound) over the course of only one year, it was almost a near certainty this time would be no different. Recent bank failures suggest things are indeed starting to break. However, we don’t think we’re on the brink of a full-blown crisis, as market indicators we follow suggest contagion risks are still currently low. And while we don’t think a full-blown crisis is imminent, financial stability risks have clearly increased, which makes a prudent asset allocation plan a must.

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