The Fed has spoken and they have decided to put the hammer to the markets.
As we predicted in yesterday’s post, the Fed announced they would raise interest rates during their meeting announcement today.
From there, we thought the likely option would be to take a “one-and-done” approach (indicating a dovish stance) with “let’s stick to our guns” being the less likely option.
The Fed split the difference.
Rather than three rate hikes in 2019, the Fed announced they planned for two hikes in 2019 followed by a third in 2020. Fed Chairman Jerome Powell then went on to say that the Fed was satisfied with its shrinking balance sheet and intended to stay the course.
There’s no denying that the Fed has had quite the tightrope to walk since the exponential Quantitative Easing (QE) that’s been taking place since 2009. Interest rates were at an historic low and the only way to build a truly strong economy (at least with central banks in charge) is to get that interest rate back up to neutral.
The Fed has been walking the fine line of raising rates while trying to come in for a soft landing, however analysts have predicted there’s simply no way there will be a soft landing from this situation.
Although a hard landing would not have entirely been the Fed’s fault, they’re certainly taking their hands off the yoke, pushing the throttle to full and telling everyone to bend over and kiss their a$$es goodbye.
What should investors do?
If you’re wanting to lighten up on positions, follow the Three Day Rule to see how the market swallows this and then consider getting out fairly quickly as the market has no idea where it’s headed from here.
Long-term investors have a little more wiggle room with their planning depending on the time horizon.
If you’re looking to add to positions, adjust your Buying in Stages carefully. If you typically follow the 5%-10%-15% approach, consider doubling it to 10%-20%-30% or even more. The trick here is you want to keep some cash available on the sidelines in case we see something truly epic such as a repeat of the market crash in ’09.
If you’re all-cash, you may want to pick and choose for key bargains. Find stocks of great companies that have been hugely destroyed. Stock prices might still head lower, but sticking with Best of Breed will help stave off some of the pain while ensuring a stronger recovery when things turn around (and they always turn around).
If you’re feeling particularly conservative, don’t make any moves at all with your available capital. Keep your powder dry and wait to see what the future holds.
At this point, only time will tell what will happen next. Stay tuned!
Disclaimer: Eric "Irk" Jacobson and all other Get Irked contributors are not investment or financial advisers. All strategies, trading ideas, and other information presented comes from non-professional, amateur investors and traders sharing techniques and ideas for general information purposes.
As always, all individuals should consult their financial advisers to determine if an investing idea is right for them. All investing comes with levels of risk with some ideas and strategies carrying more risk than others.
As an individual investor, you are accountable for assessing all risk to determine if the strategy or idea fits with your investment style. All information on Get Irked is presented for educational and informational purposes only.