02 Dec Raising Interest Rates Finally
Today Fed Chairman Jannet Yellen stated that she was looking forward to raising interest rates for the first time in a decade, its a bit interesting when you think about her statement. Its like a woodworker sitting on his hands for 10 years and then saying I’m looking forward to making that table.
The effect of her testimony was not a good one for stocks, they proceeded to sell off then consolidated at the close. The Nasdaq was sitting at all time highs earlier in the day and the other indexes looked poised to move up, however the movement of the indexes leave a lot to be desired, so does the movement of leading stocks, oil, gold and anything really. With 6 Distribution days on the Nasdaq and the S&P we could be in for a rest here or something more dramatic. You never know when a market correction is going to come, you just have to be ready for it and hopefully if you have followed your rules you are taking profits when necessary and protecting them. This is not a wide bull market we are in, the indicies have diverged with Nasdaq at all time highs today and the Russell well off highs this is a concern. They led on the way up together in lockstep almost, now they have differing opinions. Not always the best sign, however if the institutions decide to put money to work the small cap filled Russell could benefit most.
The Nasdaq is really the darling of the stock market at all time highs, but when you look at what comprises the Nasdaq can you blame it? Apple, Alphabet (Google), Microsoft….all very high quality names, and money flows into high quality during times of uncertainty. So interest rates are going to rise, thats ok, its happened before the issue is what leading growth stocks are going to do in that environment, much of the growth has been fueled by the cheap money, companies have been selling bonds because its cheaper capital then getting loans or selling stock.
So what does this mean for growth and our way of investing, well not much. As Canslimers we always want to look at the stocks and make our decisions based on what they do, not the reasons why. Yes we need to be informed, but if a stock with good earnings is moving up in a rising interest rate environment should we be scared or invest smaller? NO! Who cares why its moving up we’ll never know anyway, you dont know why the last stock you bought went up or down so just stick to the rules and forget interest rates!
While we do need to keep up to date on market events we dont base decisions on those events, we base decisions on stocks price and volume, market direction and manage our positions, cut our losses and take our profits.