The Fed Raised Rates

Yesterday, The Federal Reserve raised interest rates in an effort to lower inflation.

“The plain fact is that inflation is too high and has been for too long.”- Kevin Warsh, Federal Reserve Chair.

That all sounds good and well, but the catch is that their tool of choice for accomplishing that goal is to make borrowing more expensive for everyone; you, me, corporations, and the government itself. If they can decrease the demand for loans, they'll likely slow everyone's spending, and thus the economy as a whole, which should in turn accomplish their goal of cooling inflation. Blunt? Yes. Effective? Also yes.

And if you view the stock market as the present value of all the money those companies are going to earn for the foreseeable future, which you should, you can also understand why we saw the stock market fall yesterday.

Now, the next question is, “Are they going to raise rates just once, or is this the start of a series of multiple hikes?” Such uncertainty always causes volatility in the markets, and should be expected going forward as only time can answer that question.

So what may it all mean for your investments?

As you can probably guess from the reasons above, we can see that the stock market generally doesn't appreciate rate hikes immediately after they're enacted, but that it usually regains it's footing around 6 months after the hike.Over the past 30 years, the average 12-month gain for the S&P 500 after a rate hike is 6.7%, with a median of 10.7%, according to LPL Research.

The good news is that aside from the inflation we're all rather tired of, the economy looks surprisingly strong and the earnings of the companies that we're invested in are rather stellar, so we may very well see similar returns to those historical averages going forward.

Moore Financial Management, Inc. is an Investment Adviser registered with the State of Florida. Our current disclosure brochure, Form ADV Part 2, is available for your review upon request. Past performance is no guarantee of future results. All investing involves risk, including the loss of principal. This email is for educational purposes only and is not advice. Consult with your tax, legal, and financial advisor before engaging in any transaction.