The stock market goes up and down, spikes and plateaus, darts and drags. And those movements are all based on a vast number of things impacting all parts of Wall Street.
But right now, the majority of investors seem to be concerned with just one thing when it comes to playing the market.
Let me tell you what it is, how it’s affected the market in the past, and how to profit from it when it happens again.
A thought process that I’m hearing more and more is that a hike in interest rates by the Fed could hurt stock values enough to trigger the end of this bull market, and kick off the next bear market.
But is that the inevitable outcome once the Fed decides to make that move and bump up rates?
Whether it happens this summer or not until after this year, the impending rate hike’s consequences can be estimated by looking at previous rate hikes and how Wall Street was impacted.
By looking back as far as 1976, U.S. stocks have actually been historically resilient to rises in interest rates.
However, foreign stocks significantly outperformed their U.S. counterparts during rate hikes, and even in the period leading up to those hikes. So a strategy including diversification into European and Asian securities could keep you balanced and one step ahead.
Of course, there’s absolutely zero certainty about when hikes will begin. The Fed has been apprehensive about tinkering with rates recently, and with low inflation from a weak retail housing market, that could push any action from the Fed in this regard back not just months, but years according to some.
In my opinion, basing every market decision you make on when the Fed will raise interest rates and when they’ll do it is a bad strategy. Sure, you can be smart and safe in order to protect yourself from the doomsday scenario.
But playing it too conservatively will also keep you from realizing the much bigger potential profits from months or more of a climbing bull market.
