ONLINE FOREX BROKER
2022-06-24 • Updated
The era of COVID-19 cheap money is over. Who is afraid of the Fed's tightening cycle? Apparently not the stock market!
In a move aimed to fight the worst inflation in the US in 40 years, the Federal Reserve announced on March 16 a 0.25% increase in interest rates. It's the first time in more than three years that the Fed raises the benchmark interest rate. The last increase was in December 2018. The 25 basis point hike brings the current interest rate to the range of 0.25%-0.5%. All of this was expected because markets have priced in this increase for a long time. However, the strange thing was the US stock markets' reaction after the rate hike. Markets didn't behave the way they are supposed to.
In theory, higher rates should make stocks less attractive, because higher rates mean higher borrowing costs for businesses and consumers, which lowers the overall spending. In turn, profits are affected, which is reflected in stock market prices. However, this time, investors have rebelled against this traditional wisdom, and have pounced on the stock markets. US markets jumped after the Fed announced its long-awaited rate hike and indicated the possibility of six more hikes this year. The S&P 500 closed that day 2.2% higher.
Over the past two years, the stock market has soared and stayed strong in the face of the worst global pandemic in a century, one of the most divisive presidential elections in US history, and the Capitol building under attack. Now stocks are facing Europe's biggest ground war since World War II, and the fastest inflation since the 1980s. History indicates that US stocks are poised to face more volatility after a rate hike. This, however, does not mean that the bull market is over. In fact, in the previous eight tightening cycles, S&P 500 was higher a year after the first increase each time, according to LPL Financial.
Here's a look at what history has to say about the US stock market when the Fed starts raising rates:
Finally, the free money from the Federal Reserve was such a wonderful gift to the stock market during the pandemic that they became addicted to it. Therefore, although the high rates may pose a challenge to the US stock market, it may be able to overcome it by the end of the year. Traders must manage this volatility carefully to profit from it.
The Crypto market usually also has a rough time in September. Bitcoin lost 12.7% in September 2021, 17.4% in 2020, 17.5% in 2018, 21.4% in 2017 and 45.4% in 2015. The main cryptocurrency increased by 13.3% and 3.95% in 2016 and 2019, respectively.
Warren Buffett, the American businessman and philanthropist, has put most of Berkshire Hathaway’s cash in short-term United States Treasury bills since they offer as much as 3.43% in yields.
People all over the world love kind and colorful Disney cartoons. What if we say that you can both adore the pictures and trade stocks of the company that creates them?
The views here are solely based on Technical Analysis techniques using my personal Smart Money approach. Hence, it is important to understand that the trading of CFDs comes at a risk; if not properly managed, you may lose all of your trading capital. To avoid costly mistakes while you look to trade these opportunities, be sure to do your own due diligence and manage your risk appropriately.
Even though we've only witnessed sluggish movements from the Dollar over the past few weeks, the general idea and bias still seem intact and untampered. The bullish impulse however can be seen as "searching for support".
Suddenly, the US Dollar Index fell 6.70% over the last two weeks, marking the biggest decrease in the currency since 2020.
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