After raising rates 0.75% in June, the Fed raised rates ANOTHER 0.75% yesterday.
That’s the first time they’ve raised rates that much two months in a row since the early 90’s.
And the markets….
LOVED IT!
The Dow’s up 600 points. The S&P’s up 4% in just two days!
So what gives? Is that a good thing or a bad thing?
Here’s the 1st of my 2 cents:
The market has climbed the wall of worry for a while now – meaning, with rates at 0% if another real recession hit, the Fed wouldn’t have any “dry powder.”
Now they have a reason to raise rates – to combat inflation – which also gives them some wiggle room the next time the economy hits the skids.
So the market’s getting a two-fer, which it likes.
Here’s the 2nd of my 2 cents:
One of my mentors compared the market to Forrest Gump running coast-to-coast endlessly. Like Forrest, the market was born a runner. It can’t NOT run.
That said, it still needs to take breaks. So if it needs one, it’ll take one.
But it’s not going to just lie down in the middle of the street. It’ll take a break at a convenient time and place (for IT, not necessarily for you).
For instance, if it’s needing a break and a thunderstorm hits, then maybe it’ll use that opportunity to rest for the night.
But if doesn’t need a break, then even a thunderstorm won’t stop it. It’ll run through the rain.
Where short-sighted, pattern-seeking humans get it wrong is we think “Oh, the market breaks for thunderstorms.” And when it DOESN’T stop for the next thunderstorm, we scratch our heads.
With that perspective, I can’t help but notice that the market’s now up 11.1% over the last month. It’s “run through” bad earnings reports, slower spending, high inflation and 1.5% Fed rate hikes.
So maybe – just maybe – its break is over.*
*Not that it should matter because you’ve been fully invested this whole time, right? RIGHT?!
