‘Markets are going to get rocked’ as Fed is likely to push rates higher, economist warns
Fed’s Powell won’t stop rate hikes until he ‘terrifies’ the wealthiest of investors, says this CIO
… Fed May Need to Hike Interest Rates Beyond 5%
These headlines made their way to my browser yesterday morning – and I’m sure some variation thereof reached yours as well.
It immediately put a bad taste in my mouth; we are barely two weeks into the new year, and already the financial news media are placing their habitual over-emphasis on the Fed’s moves.
As I’ve said before, it’s not that the Fed’s rate hikes are irrelevant; it’s that they are not as relevant as most investors seem to think.
The trend is what matters, and there’s no question that the interest rate trend of the last few months has been down. The 30-year Treasury bond yield has dropped from 4.42% to 3.75% during the last three months. That’s a move in the right direction.
So I think we’re approaching the silver-lining stage – the moment when investors begin to believe that the Fed has accomplished its task of taming inflation.
In today’s issue, let’s examine what really matters to the markets – and your money:
The big, dominant trends.
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“Fed Schmed”
Everything is pointing to subsiding inflation.
Energy, in terms of crude oil, is generally trending lower and experiencing more pullbacks. The supply-chain issues are clearing up. And final demand from both consumers and businesses is moderating.
Because of these key disinflationary factors, I expect the market to begin “looking ahead” to when inflation concerns have diminished.
Trying to predict the market’s reaction to a Fed announcement is risky, especially when we’re down in the market rabbit hole when good news is bad news, and vice versa.
For example, if the Fed raises rates less than expected, you would think that would be good news. And it could be… but it could also be viewed that the economy is slowing faster than expected and maybe heading for a deeper recession, which would be bad news.
Or if the Fed raises rates more than expected, it could be good news that the central banks are going after inflation aggressively. On the other hand, it could mean that nothing is working so far, and inflation is on the verge of being out of control.
It’s just like jobs reports. A stronger-than-expected jobs report seems like it would be nothing but good news, but if it means the economy is continuing to heat up and the Fed will need to raise rates more aggressively, it could be bad news.
I think we’re likely past the tough part of figuring out where inflation and the economy stand and what the Fed will do about it. The market has already priced those factors in, so unless there is a huge surprise of some sort, today’s and tomorrow’s meetings probably won’t have the same impact as those earlier in the year.
To be clear, I’m not dismissing in the importance of the Fed and monetary policy. Of course it’s critical.
But unless the inflation and/or interest-rate trend has changed and the Fed shocks the heck out of us, I believe we are now in an environment where investors can put their cash to work in expectation of solid and even large profits down the road.
True, you may invest in a stock that drops another 10%-20% in the current volatility, but it is unlikely you would be looking at the 50% or more shellacking that many stocks have gotten so far in 2022.
Most important of all, there is now a greater chance that short-term losses will reverse and become 10%, 20%, 50%, or even bigger gains in the coming months and years – provided you’re investing in quality stocks, of course.
Now, this Friday, I’m releasing my latest issue of Fry’s Investment Report – and it’s going to be a big one.
Every January, I reveal which trends I see dominating the market – and give you the best chances to profit in the near future – for that year.
You can go here to refresh your memory on last year’s megatrends, most of which may continue to deliver profits for savvy investors into this year and beyond.
And if you want to get the first look at those megatrends, as well as the recommendations that will go along with each one, click here to learn how to sign up for Investment Report.
Regards,
Eric
On the date of publication, Eric Fry did not have (either directly or indirectly) any positions in the securities mentioned in this article.
