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While the NCAA March Madness, is in full swing, it seems as if there is “madness” in the markets as well with a number of cross currents taking place all at the same time. At the moment, we have a strong dollar, weaker oil, and now interest rates may not move up until the fall.
I mentioned on Fox Business this past Friday, that this market reminded me of the energizer bunny. It keeps going, and going …and yet there have been contrarians and bears all along the way that have been very negative about the market. I mentioned, “A trend is your friend.” In my opinion, watching the market action and taking direction from it is a more reliable strategy.
Markets finally snapped their three-week losing streak and rebounded as investors bought the dip and rallied after a Fed meeting. For the week, the S&P 500 gained 2.66%, the Dow rose 2.13%, and the NASDAQ added 3.17%.1
The Federal Reserve Open Market Committee met last week and issued a statement that supports future interest rate hikes. Though rates won’t come up at the next meeting in April, a June hike is possible if the economic tea leaves show continued improvement.2
What could an interest rate hike mean for markets? While we can’t predict the future, we can look backwards to see what hints history can provide. Back in June 2013, then Fed Chairman Ben Bernanke started talking about the need to gradually trim back bond-buying operations. This “taper talk” led to a brief selloff of 5% as jittery investors started worrying about how the economic recovery would survive without the Fed’s easy money.3
What’s happened since then? The Fed started tapering (wrapping up in October 2014), the unemployment rate has continued to fall, and the economy continues to expand. Since the day in 2013 that Bernanke announced his tapering intentions, the S&P 500 has gained 29.41% and has reached multiple all-time highs along the way.4
Right now, investors are experiencing similar rate hike jitters as they adjust to the new reality of higher interest rates. While we don’t know how soon the Fed will start hiking rates, we do know that they’ll do it in a gradual way. Will interest rate hikes torpedo the economic recovery? No. Will they affect short-term market performance? Probably.
We can’t control market performance. All we can do is focus on your personal goals, keep an eye on the overall environment, and stay flexible and on the lookout for opportunities that arise.
As we approach the end of the quarter, we can expect more market volatility as investors weigh the effects of another cold winter on economic growth and corporate earnings. Analysts will also be waiting for Friday’s final estimate of fourth quarter 2014 economic growth as well as follow-up comments from Fed economists who might give further insight into the timing of rate hikes.
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