Disclaimer: The content from The Daily Reckoning Australia’s global cast of characters is their own view and opinion. It is not to be taken as investment advice.
Every Investment Hangs on This One Word
There is one thing that baffles me most about the market these days: Just how fragile they are.
My case in point?
That the Federal Reserve Bank needs to tell the global markets what to expect.
Pre financial crisis, the Fed would give the market hints on what to expect for monetary policy. But only a few weeks before the meeting. Perhaps even days before the meeting.
Not so anymore.
The days of finding out clues less than 14 days before a Fed meeting are gone.
Now, the markets need to know what’s in store not just for the months ahead, but the years ahead.
Take the Fed’s last meeting in December 2018.
Fed Chairman Jerome Powell told the markets what the plan is for 2019.
That is, two rate hikes. And it’s likely that the US will end the year with a funds rate around the 2.9% mark.
As Jim points out today, the markets already know not to expect a rate hike in March this year.
However, according to his analysis, there’s a chance the market will have a tantrum when Powell drops the use of one particular word.
Yet, here’s the problem with this.
The markets are so fragile that their rises and falls are dependent on one word.
It’s utterly absurd.
For over a century, the stock market was meant to be a representation of economic activity within a country.
Today, the stock markets move based on the decisions of central bankers.
Worse still for Aussies is that it’s not even our own central bank. Yet what the Fed does has an impact on our own market.
The US market — and global markets — hang on to every tidbit the Fed feeds them. Every snippet of information is overanalysed.
Put simply, it’s not normal.
The health of stock markets shouldn’t rely on the decisions of just a few men and women.
That’s why it’s more important than ever to ensure you are up to speed on global market movements.
Read on for what Jim has to say about the Fed for this year.
Because being informed of the Fed’s plan can help you make better investing decisions in the long run.
Until next time,