The Dow slid over 800 points and recorded the biggest single-day drop in eight months, led by a steep decline in tech shares and worries of rapidly rising rates. How should investors position themselves as volatility rises and the era of historically low rates come to an end? Kim Parlee talks with Brad Simpson, Chief Wealth Strategist at TD Wealth.
I guess you would call this almost like a turkey hangover. Many long weekends across the globe. I don't know if you ever-- we spent an awful long digesting a tough market at the end of last week, and then if it proves a lot of newspapers on the weekend, almost every story was along the lines of, well, boy. Oil's a lot higher than what you thought it was going to be. Boy, interest rates are a lot higher than they were a year ago. And you mix in worries about Chinese and US currency and throw in almost a never ending-- almost a tariff announced every day.
And I think we opened up. And today, the more the reality is that this is the discussion point in the market where I think there's a little bit of realization that maybe we're in a shift. And then you start that shift and all of a sudden then the trade programs kick in, and you start moving below technical averages, where some sales are automatically put in, and I think you get a market like you had today.
You talk a bit about-- we were chatting before the show started about Jenga, and all those little pieces you mentioned, all those little blocks that were getting pulled out. I know one thing that you mentioned too-- we've heard about a report all day today is about yields obviously going higher, and if you start hearing things with a four-handle, it suddenly becomes-- equities aren't the only game in town.
Right. No, I mean look, right now, you can get a yield on cash that is higher than the trailing dividend yield on the S&P 500. We haven't had that in a decade. First it was, well, the yield on the 10 year is higher, then it's the two, now it's cash. And then on the other side, you're starting to hear people talk about, gee, I went to renew my mortgage, and somebody had a four when they were telling me about it. And that's a changing environment. And so what I think is quite amazing, and I think if you look at investment commentary, it's always when the interest rates are going down, don't fight the Fed, don't fight the Fed, don't fight the Fed. Then interest rates start going up, and that's just disappears. No one keeps saying, don't fight the Fed.
And I know in our own portfolios, we're not doing a lot of fighting the Fed. And so I think you have to really think about that. So I think managing for interest rate risk is a big thing that you need to be doing in your portfolios, and today we saw the beginnings of this in the spring. And I think the bigger question, or maybe the more precise question is that when between January and March of this year, we had stock and bond markets correct. And then we just went quiet again.
And I think that kind of action we saw in the spring is more like we've seen today, and if anything, I think that's pent up from-- we just went quiet again. And the reality is that as central banks move away from this, we start getting into a market environment that's more real.
I know I let people know that we're about to talk a bit about your philosophy in general, the kind of things you think investors need to think about at this point because we've shifted, but one thing I know that you've written about is that when markets go down, one reason could be that we're heading towards a recession. But you said, based on when you look at past recessions-- and I think we have a chart that can bring up here-- that doesn't look to be the case.
Sure. So yeah, there's two things that'll make a market go down, One is the known, and we're leading into a recession. So when we look at the recessions going back into the early 1970s and what are those key inputs, we really don't have a check mark for any of those. So we use this thumbs up or red thumbs down. But if we look right now, we do not have an inverted yield curve.
It's almost all thumbs up.
It's all thumbs up. The only one that we have really that we have moved is outlook for inflation, and we've gone neutral there. And that's indicative of today, is that part of the move is, what if there's more inflation than what you think there's going to be? Which will lead to higher interest rates than what you think they're going to, which again, that can filter all the way through the economy. But today, we're still not seeing that impact. We have a really healthy economy today.
All right, let me ask you-- and I've only got about 30 seconds here, though-- in terms of the shift that's going on-- I know you're a big believer in what got us to here may not get us to the next point, so is that the spot we're in right now, though?
Well, I think every time we have a day like today, I think investors just need to sit back, and they need to think about-- we are moving to a different environment, and this is just a changing of the signposts. Maybe you're in a little bit of the fork in the road, and you've chosen one direction for a long time. It's time to think about a little bit different one. So just step back, look at you look at your portfolio, and think about it in those terms. But also think about it in the terms that this changing of the guard doesn't mean it has to be going to a bad thing, it just means that we're going into a different thing, and let's make sure our portfolio's prepared for it.