{"id":11595,"date":"2022-03-31T17:12:42","date_gmt":"2022-03-31T17:12:42","guid":{"rendered":"https:\/\/zacksim.com\/blog\/?p=11595"},"modified":"2022-03-31T17:12:44","modified_gmt":"2022-03-31T17:12:44","slug":"how-will-bigger-rate-hikes-impact-the-market","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/how-will-bigger-rate-hikes-impact-the-market\/","title":{"rendered":"How Will Bigger Rate Hikes Impact the Market?"},"content":{"rendered":"\n

Janet A. from Colorado Springs, CO asks: <\/em>Hello Mitch, I noted in the news last week that the Federal Reserve was open to bigger interest rate increases, and it appeared that the statement spooked the markets. What are your thoughts on this?<\/p>\n\n\n\n

Mitch\u2019s Response:<\/strong><\/p>\n\n\n\n

Thank you for sending in your question. You\u2019re referring to remarks made last week by Federal Reserve Chairman Jerome Powell at a discussion before the National Association of Business Economics, where he said that \u201cif [the Fed] thinks it\u2019s appropriate to raise [by a half point] at a meeting or meetings, we will do so,\u201d adding that, \u201cif [the Fed] determines that we need to tighten beyond common measures of neutral and into a more restrictive stance, we will do that as well.\u201d1<\/sup><\/p>\n\n\n\n

These comments came just a few days following the Federal Reserve\u2019s decision to raise the benchmark fed funds rate from near zero to a range between 0.25% and 0.50% \u2013 a modest quarter-point hike.<\/p>\n\n\n\n

Fears Surrounding Another Market Correction? See What Steps You Can Take From Here.<\/a><\/u><\/strong><\/p>\n\n\n\n

We just witnessed yet another market correction. Some investors are questioning if it\u2019s over and others are debating on exiting the market out of fear. As difficult as it may seem, it\u2019s better to remain calm and avoid rash moves.<\/p>\n\n\n\n

It\u2019s easier said than done, but the actions you take right now have the greatest potential to define your financial future. And I\u2019m here to help!<\/p>\n\n\n\n

I have put together a free Black Swan investing playbook with insights and guidance to help you seek success when investing through these unprecedented times. If you have $500,000 or more to invest, get our free investing playbook today.<\/p>\n\n\n\n

Download – The Black Swan Investing Playbook2<\/sup><\/em><\/a><\/u><\/strong><\/p>\n\n\n\n

What threw the market a bit was Mr. Powell\u2019s seeming shift into a more hawkish tone, just days after the formal Fed decision. It was as though the market got a clearer glimpse into the Fed Chairman\u2019s actual thinking, which revealed more hawkishness than previously thought.<\/p>\n\n\n\n

I generally agree that a bigger- and more aggressive-than-expected path of rate increases would be a negative for stocks, as the market does not like surprises. But I\u2019m encouraged by two features of this story, at least in the near term.<\/p>\n\n\n\n

The first is that Chairman Powell is telegraphing his thoughts on interest rate policy and inflation, which reduces the likelihood of a negative surprise. The second feature is that we are just one rate hike into what is likely to be a multi-year monetary tightening campaign. As I\u2019ve written in the space before, bull markets and economic expansions end after the Fed\u2019s last rate hike, not their first one. Stocks have performed quite well historically in the early phases of rate hike cycles, and I expect a similar outcome for 2022 given the strong economic growth backdrop.<\/p>\n\n\n\n

All that to say, I would not worry too much about Fed policy this year. The equity market is well aware of the Fed\u2019s plans this year and much of the expected tightening for 2022 is already getting baked into stock prices, in my view. If you want a better interest rate metric\/fundamental to watch this year that can give you some insight into the growth outlook, keep your eye on the yield curve as measured by the 10-year US Treasury bond yield minus the 3-month US Treasury bond yield. As you can see in the chart below, the yield curve has been steepening so far in 2022, a good sign that growth conditions are present even as the Fed engages in a tightening campaign.<\/p>\n\n\n\n

\"\"
Source: Federal Reserve Bank of St. Louis3<\/sup><\/em><\/strong><\/figcaption><\/figure>\n\n\n\n

More rate hikes are coming in 2022, but the good news is that market participants are all aware of it. I do not think you need to fear the Fed this year.<\/p>\n\n\n\n

With that being said, in times like these, it is better to base your decisions on research, not emotions! Don\u2019t sell and exit the market or wait on the sidelines out of fear.<\/p>\n\n\n\n

That\u2019s why I have put together a free Black Swan investing playbook4<\/sup> with insights and guidance to help you seek success when investing through these unprecedented times. If you have $500,000 or more to invest, get our free investing playbook today. You\u2019ll learn about seven time-tested guidelines to help you seek investment success through this historic \u201cBlack Swan\u201d market downturn.<\/p>\n","protected":false},"excerpt":{"rendered":"

The Fed signaled potentially bigger rate hikes in the months ahead. Mitch looks at what that could mean for investors. <\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[66,71],"tags":[],"class_list":["post-11595","post","type-post","status-publish","format-standard","hentry","category-mitchs-mailbox","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/11595","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=11595"}],"version-history":[{"count":2,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/11595\/revisions"}],"predecessor-version":[{"id":11598,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/11595\/revisions\/11598"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=11595"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=11595"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=11595"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}