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What Is Behind The Recent Stock Market Plunge?

BOSTON (CBS) -- The stock market has been a rollercoaster over the last few weeks, and there is growing sentiment the Federal Reserve isn't doing enough to combat inflation. The central bank raised its benchmark interest rate half a percent. That is the steepest increase in two decades. This was all done in an attempt to bring inflation down from a 40-year high.

Senior Managing Partner at Armstrong Advisory Group Mike Armstrong talked to WBZ-TV's Paula Ebben about the recent plunge to the stock market.

Paula Ebben: What are some of the major contributing factors in all of this fluctuation?

Mike Armstrong: I think we all recognize [the incredibly high inflation right now], or are experiencing it on a day-to-day basis -- the worst we've seen since the early 80s. And while the Fed is seeming to talk a big game about going to combat that inflation and trying to convince people out there that they're taking it seriously, the facts really aren't an evidence.

For all of last year, when we were starting to experience inflation, they were using that word "transitory."

And to be fair to the Federal Reserve at that point in time, there's a fair bit of evidence that it could be "transitory," but then it stuck around and even got worse. And compared to what investors and most market analysts are anticipating at this stage, the Fed is being a little bit more conservative, a little bit more dovish when it comes to how they're handling interest rate policy.

And so yesterday, the Federal Reserve did exactly as was anticipated by raising interest rates by 50 basis points. But what they specifically also did was took the idea of a 75-basis-point interest rate increase off the table for their next meeting six weeks from now. And that boosted markets yesterday, but seems to be causing them to sell off a bit today.

Paula Ebben: So it seems as though the Federal Reserve is trying to just tap the brakes a little bit. Could a rate hike trickle down to the rest of the economy now that money is more expensive to borrow? Will that compel businesses and consumers to cut spending a little bit?

Mike Armstrong: We'll see. Some of this stuff is already being felt.

I mean, if you go take a look at the 30-year mortgage rates, they had hit five and a half percent well before the Federal Reserve announcement that they were formally moving interest rates by half a percentage point. And so in 30-year mortgage rates, they're up over two percent so far this year, just for the beginning of this year. But we're not really seeing any big indications that housing inventories are ticking up or that demand for housing seems to be falling down at this stage.

And so my answer is, yeah, you might start to see that, but there's also a lot that could cause inflation to get worse. We're still dealing with the the ramifications of the Russian invasion of Ukraine. We're just starting to deal with the impact of the shutdowns in China, the lockdowns in cities like Shanghai and the supply chain impact that those could have. And if either of those situations get worse, you can see a circumstance where, you know, in spite of the Fed taking action, and you know, things going all right here domestically, that inflation could get worse before it gets better.

Paula Ebben: The vast majority of people are concerned about their 401K, and their stomach kind of lurches when they see the markets doing this. What's your advice to people? Should they be concerned about their 401k or just close their eyes?

Mike Armstrong: I don't think you should necessarily close your eyes. I think that we should all be concerned and understanding about what is happening in our economy and what is happening in our stock market.

For the vast majority of people that probably does mean to do nothing and to set things aside and allow them to return back to their normal. But again, I always ask the question, "What game are you playing?'

If you are a 67-year-old investing in your 401K, that's looking at retirement six months out, you should be playing a far different game than a 45-year-old or a 30-year-old that's still got a lot ahead of them. Likewise, I spoke with somebody last year who would exchange some of their company stock for and went out and bought a lot of the high-flying mean companies of 2020, really high fliers to 2020, and they're feeling that now and they're not alone in that.

And so you know, the markets at this stage, you know, S&P off a little bit more than 10%. But for some investors out there, it feels a heck of a lot worse, because there are NASDAQ companies that are down 70-80 percent right now.

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