Stocks plunged 5.2 percent in January. Any of several reasons, including the most obvious (profit-taking), could explain the selling. A potential war in Ukraine is clearly one. That would have wide-spread ramifications for Germany and other countries that rely on Russia’s natural gas. There is trouble elsewhere. Yemeni rebels have attacked the UAE and Saudi Arabia with drones and missiles. China continues to buzz Taiwan’s air space. North Korea is testing ballistic missiles. Iran is getting ever closer to having a nuclear bomb. There’s plenty to worry about. There always is.

Another reason is rising inflation’s negative impact on the economy and investments. That above all else explains an increasing unease among investors. For that reason the Fed will raise rates in March and likely do so again and again. Rising rates are not a catalyst for economic growth. In fact, if anything they are the opposite because they raise the cost of capital. That is not all bad, given the grim inflation picture, which will remain bleak at least through year-end. Higher interest rates will inhibit inflation by slowing economic growth.

At the start of the year the market priced in three rate increases. Now the market is pricing financial futures to reflect at least four boosts this year, more likely five. And the market is assuming those increases will all be quarter-point boosts. The first might be a half-point, maybe the second as well. While that would shorten the rate-raising cycle, investors might conclude that the Fed must see conditions deteriorating more than investors do.

The Fed’s policy change means the bull market in everything has ended. Just as there was a steroid era for baseball, there was a stimulus era for securities. Easy money and fiscal policies fueled stocks, real estate, cryptos, NFTs, and nearly everything that traded. It is clear that Fed policy regarding inflation could not have been more wrong. It has been a colossal policy error of a size not seen in many decades. They recognize that now.

My outlook – Money market rates might yield 1 1/2 percent by year end. As for stocks look to 1994 as a guide. The market initially plunged when Greenspan began increasing rates and then stabilized even as the Fed continued to raise rates. Back then the rate increase cycle started with a 4 percent federal funds rate. Now it is starting at zero. Rates will still be low. That’s why large-cap quality stocks that pay and raise dividends will do best. Non-fungible tokens? Not so fast.

— David Vomund is an Incline Village-based Independent Investment Advisor. Information is found at http://www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.