Markets are crashing As Fed is raising Rates
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Markets are crashing As Fed is raising Rates
This is the first time in a long time like in 1981 that Fed is raising rates as the markets are crashing.
https://fred.stlouisfed.org/series/FEDFUNDS
Also Bonds are selling off at the same time Stocks are crashing.
If the Fed Funds rate is going to be 3% then it is going to be 5 more months of the rate increases.
If you look at the Dollar it is going up as we speak without even serious sell off. I cant believe what will happen to the dollar when the markets crash 40%.
https://seekingalpha.com/symbol/UUP
Is there going to be a massive crash ahead?
https://fred.stlouisfed.org/series/FEDFUNDS
Also Bonds are selling off at the same time Stocks are crashing.
If the Fed Funds rate is going to be 3% then it is going to be 5 more months of the rate increases.
If you look at the Dollar it is going up as we speak without even serious sell off. I cant believe what will happen to the dollar when the markets crash 40%.
https://seekingalpha.com/symbol/UUP
Is there going to be a massive crash ahead?
Last edited by invest2bfree on Fri May 06, 2022 8:49 am, edited 1 time in total.
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Re: Markets are crashing As Fed is raising Rates
Maybe. A recession certainly seems likely.
Re: Markets are crashing As Fed is raising Rates
No it's not, they were raising rates in 2018 as stocks fell... people were calling it a "taper tantrum".invest2bfree wrote: ↑Thu May 05, 2022 7:14 pm This is the first time in a long time like in 1981 that Fed is raising rates as the markets are crashing.
...
Despite what some people seem to think, it's not the Fed's job to prop up the stock market.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
Re: Markets are crashing As Fed is raising Rates
Yes. Maybe. Who knows?
There is the famous quip from a economist who claimed to have 14 times corrected call the last 3 recessions.
There are lots of moving pieces. There are lots of up sides and downs to various scenarios. The Fed is getting lots of the press but I don’t think the role is that important.
In closing, pick a asset allocation based on your risk tolerance.
There is the famous quip from a economist who claimed to have 14 times corrected call the last 3 recessions.
There are lots of moving pieces. There are lots of up sides and downs to various scenarios. The Fed is getting lots of the press but I don’t think the role is that important.
In closing, pick a asset allocation based on your risk tolerance.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Re: Markets are crashing As Fed is raising Rates
Exactly. Once again, remember, the stock market is not the economy.JoMoney wrote: ↑Thu May 05, 2022 7:21 pmNo it's not, they were raising rates in 2018 as stocks fell... people were calling it a "taper tantrum".invest2bfree wrote: ↑Thu May 05, 2022 7:14 pm This is the first time in a long time like in 1981 that Fed is raising rates as the markets are crashing.
...
Despite what some people seem to think, it's not the Fed's job to prop up the stock market.
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Re: Markets are crashing As Fed is raising Rates
There is always the possibility of a massive crash ahead. You'd best choose a strategy that will enable you to deal with it.invest2bfree wrote: ↑Thu May 05, 2022 7:14 pm This is the first time in a long time like in 1981 that Fed is raising rates as the markets are crashing.
https://fred.stlouisfed.org/series/FEDFUNDS
Also Bonds are selling off at the same time Stocks are crashing.
If the Fed Funds rate is going to be 3% then it is going to be 5 more months of the rate increases.
Is there going to be a massive crash ahead?
The Sensible Steward
Re: Markets are crashing As Fed is raising Rates
This is how DCF models work. Interest rates go up, the value of the cash flows go down. The offset is better earnings. But we're already seeing the customer pull back on spending. E commerce is getting hammered. So if earnings are slowing down, and if rates are going up, then equities should go down.
Re: Markets are crashing As Fed is raising Rates
Probably, but the timing is always difficult. Is this the real thing, or is this another tantrum before the real thing?
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Re: Markets are crashing As Fed is raising Rates
If you look at the Dollar it is going up as we speak without even serious sell off. I cant beleive what will happen to the dollar when the markets crash 40%.
https://seekingalpha.com/symbol/UUP
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Re: Markets are crashing As Fed is raising Rates
See, this is why I am skeptical of the bond bearishness.invest2bfree wrote: ↑Thu May 05, 2022 7:41 pm If you look at the Dollar it is going up as we speak without even serious sell off. I cant beleive what will happen to the dollar when the markets crash 40%.
https://seekingalpha.com/symbol/UUP
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Re: Markets are crashing As Fed is raising Rates
Indeed. To be clear, the Fed's job is written into law, the so-called "dual" mandate, and it is:
Nothing in there about the stock market.to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates.
It's normal and to be expected that if interest rates rise, [added] other things being equal the market value of both stocks and bonds will fall, and for the same reason. They both represent dollar benefits that will be paid sometime in the future.
When interest rates rise, dollars that will be paid in the future are worth less today than they were. When the interest rate is 1%, $100 today will grow to $101 in a year. So $101 you will get a year from now is worth $100 today. So $100 a year from now is worth about 1% less than $100, or about $99.
If the interest rate rises to 2%, $100 a year from now is only worth about $98 today.
When interest rates rise, promises of future money become worth less today.
Both stocks and bonds represent a hope of future dollar benefits. They are an estimate of present value of future payments. If the future benefits don't change, then a rise in interest rates makes both stocks and bonds worth less today, and their present value falls together.
Last edited by nisiprius on Thu May 05, 2022 8:35 pm, edited 1 time in total.
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Re: Markets are crashing As Fed is raising Rates
In my view yes, because in 2018 the Fed started this and the market dropped 20%, now we aren't even there and unlike that episode we now have a situation where the Fed can't reverse course, so they are going to plug through their agenda and leave carnage in both the stock and housing markets... as ugly as it gets.
Re: Markets are crashing As Fed is raising Rates
This makes sense. As treasury rates go up, demand for treasury bonds go up and along with it the demand for US dollars. And this is bad for International from a currency perspective.invest2bfree wrote: ↑Thu May 05, 2022 7:41 pmIf you look at the Dollar it is going up as we speak without even serious sell off. I cant beleive what will happen to the dollar when the markets crash 40%.
https://seekingalpha.com/symbol/UUP
Re: Markets are crashing As Fed is raising Rates
However, you if you read Ben's book about his time as chairman, the Fed absolutely monitors markets.nisiprius wrote: ↑Thu May 05, 2022 7:51 pmIndeed. To be clear, the Fed's job is written into law, the so-called "dual" mandate, and it is:Nothing in there about the stock market.to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates.
It's normal and to be expected that if interest rates rise, the market value of both stocks and bonds will fall, and for the same reason. They both represent dollar benefits that will be paid sometime in the future.
When interest rates rise, dollars that will be paid in the future are worth less today than they were. When the interest rate is 1%, $100 today will grow to $101 in a year. So $101 you will get a year from now is worth $100 today. So $100 a year from now is worth about 1% less than $100, or about $99.
If the interest rate rises to 2%, $100 a year from now is only worth about $98 today.
When interest rates rise, promises of future money become worth less today.
Both stocks and bonds represent a hope of future dollar benefits. They are an estimate of prevent value of future payments. If the future benefits don't change, then a rise in interest rates makes both stocks and bonds worth less today, and their present value falls together.
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Re: Markets are crashing As Fed is raising Rates
nisiprius wrote: ↑Thu May 05, 2022 7:51 pm To be clear, the Fed's job is written into law, the so-called "dual" mandate, and it is:Well, they are failing miserably at one of their dual mandates. Last I checked, 1 out of 2 = 50% = a big fat “F”.to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates
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Re: Markets are crashing As Fed is raising Rates
my crystal ball is cloudy.
making predictions is hard, especially about the future.
“The idea that a bell rings to signal when investors should get into or out of the market is simply not credible. After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently.”
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On the importance of sticking to your plan, no matter what happens:
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“In the mutual fund industry, for example, the annual rate of portfolio turnover for the average actively managed equity fund runs to almost 100 percent, ranging from a hardly minimal 25 percent for the lowest turnover quintile to an astonishing 230 percent for the highest quintile. (The turnover of all-stock-market index funds is about 7 percent.)”
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Re: Markets are crashing As Fed is raising Rates
I don't know about a massive crash, but slow grinding toward a bear market is certainly a possibility at this point.invest2bfree wrote: ↑Thu May 05, 2022 7:14 pm This is the first time in a long time like in 1981 that Fed is raising rates as the markets are crashing.
https://fred.stlouisfed.org/series/FEDFUNDS
Also Bonds are selling off at the same time Stocks are crashing.
If the Fed Funds rate is going to be 3% then it is going to be 5 more months of the rate increases.
Is there going to be a massive crash ahead?
The markets do not like hikes and we see that in action.
Re: Markets are crashing As Fed is raising Rates
You need to qualify that with "all else being equal". Market reaction also depends on why interest rates rise. For example, a very strong economy may well lead to higher interest rates (bonds fall) and higher stock prices (stronger than expected earnings outweighing interest rate effects). On the other hand, Fed tightening to reduce inflation may well lead to a slower economy, which is not great for stocks. Effects on medium and long rates are less certain. A slower economy and lower inflation could mean lower medium and longer rates, or not. It depends.
It seems like only a few months ago many were complaining about low rates on their bonds. Now many are complaining about bond values falling. Hard to have both high yields and high bond prices.
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Re: Markets are crashing As Fed is raising Rates
Done. I'd sort of said that in another place, "If the future benefits don't change."
I'm too lazy to search for it but I feel quite sure there are posts in the past at which people have insisted that stocks and bonds will reliably move in opposite directions, and other people have pointed out that a change in interest rates would tend to make them move in the same direction.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Re: Markets are crashing As Fed is raising Rates
Re: Markets are crashing As Fed is raising Rates
About 24hrs ago the Fed was raising rates as the markets were dramatically rising. So you sort of get to pick your narrative.invest2bfree wrote: ↑Thu May 05, 2022 7:14 pm This is the first time in a long time like in 1981 that Fed is raising rates as the markets are crashing.
Re: Markets are crashing As Fed is raising Rates
Pfft...you expect people to remember as far back as 2018 before making wild claims on the Internet? 2018 was like 1,000 years ago, wasn't it??JoMoney wrote: ↑Thu May 05, 2022 7:21 pmNo it's not, they were raising rates in 2018 as stocks fell... people were calling it a "taper tantrum".invest2bfree wrote: ↑Thu May 05, 2022 7:14 pm This is the first time in a long time like in 1981 that Fed is raising rates as the markets are crashing.
...
Despite what some people seem to think, it's not the Fed's job to prop up the stock market.
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Re: Markets are crashing As Fed is raising Rates
I... I wasn't alive in 1998.zaboomafoozarg wrote: ↑Thu May 05, 2022 9:34 pmIt is funny how few people on the internet seem to remember 2018, let alone 2008 or 1998.
This is the first time I've personally experienced a high inflation environment. If there's a recession, it will be the first where I'll be affected by it.
Re: Markets are crashing As Fed is raising Rates
You've got to admit, it's scary watching an index crash on Thursday to levels not seen since Wednesday morning.tibbitts wrote: ↑Thu May 05, 2022 8:59 pmAbout 24hrs ago the Fed was raising rates as the markets were dramatically rising. So you sort of get to pick your narrative.invest2bfree wrote: ↑Thu May 05, 2022 7:14 pm This is the first time in a long time like in 1981 that Fed is raising rates as the markets are crashing.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Re: Markets are crashing As Fed is raising Rates
You forgot to mention his prediction in 2018 that the market would return a paltry 3-4% at best....arcticpineapplecorp. wrote: ↑Thu May 05, 2022 8:05 pmmy crystal ball is cloudy.
making predictions is hard, especially about the future.
“The idea that a bell rings to signal when investors should get into or out of the market is simply not credible. After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently.”
— John C. Bogle
On the importance of sticking to your plan, no matter what happens:
“The winning formula for success in investing is owning the entire stock market through an index fund, and then doing nothing. Just stay the course.”
— John C. Bogle
......
source: https://financinglife.org/bogle-quotes/
In general, his advice was great. But he was as much a failure at predicting what the market would do as anyone else.
Re: Markets are crashing As Fed is raising Rates
Recession is a scary word, especially for prime age workers who remember 2008. We've had--what, two major ones out of how many? A dozen or so (or 50 lol) depending on definition. Recessions usually follow periods of hot growth, but they have all been around 8-18 months.
The big hits hurt because they involved broad catastrophic economic conditions.
I can't comment on whether the Fed is doing the right thing. (Nobody thinks the Fed ever does the right thing.)
Covid ended a long period of economic expansion, but it did not end the market growth that most of us benefited from as investors--through the beginning of this year.
Breaking things down, I made a lot of passive profit being invested the last decade, and following basic rules means I am not that worried about the next year, except that it hurts a little to not make bank.
I don't have to worry too much about higher rents or having to pay more for groceries, which is to say I'm privileged, which I think is true of most people on this forum.
The big hits hurt because they involved broad catastrophic economic conditions.
I can't comment on whether the Fed is doing the right thing. (Nobody thinks the Fed ever does the right thing.)
Covid ended a long period of economic expansion, but it did not end the market growth that most of us benefited from as investors--through the beginning of this year.
Breaking things down, I made a lot of passive profit being invested the last decade, and following basic rules means I am not that worried about the next year, except that it hurts a little to not make bank.
I don't have to worry too much about higher rents or having to pay more for groceries, which is to say I'm privileged, which I think is true of most people on this forum.
Re: Markets are crashing As Fed is raising Rates
It may not be part of its official mission, but the Fed definitely cares about markets. It would be naive to believe otherwise. That's not to say "the Fed will keep stocks high forever" but read between the lines.
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Re: Markets are crashing As Fed is raising Rates
Gotta look, gotta look... where the heck did I put my glasses...
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Re: Markets are crashing As Fed is raising Rates
S&P one week ago: 4,131vineviz wrote: ↑Fri May 06, 2022 1:53 amYou've got to admit, it's scary watching an index crash on Thursday to levels not seen since Wednesday morning.tibbitts wrote: ↑Thu May 05, 2022 8:59 pmAbout 24hrs ago the Fed was raising rates as the markets were dramatically rising. So you sort of get to pick your narrative.invest2bfree wrote: ↑Thu May 05, 2022 7:14 pm This is the first time in a long time like in 1981 that Fed is raising rates as the markets are crashing.
S&P right now: 4,126
In between was a roller-coaster ride.
Re: Markets are crashing As Fed is raising Rates
Only if you look
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Markets are crashing As Fed is raising Rates
Are you referring to Bogle? I'm not a serious student of the man but all I recall were 10-year estimates in that range up to 5%, never any short-term predictions. He certainly wasn't wildly optimistic, and he's not wrong...yet.
I'm not smart enough to know, and I can't afford to guess.
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Re: Markets are crashing As Fed is raising Rates
In 2018, Markets started crashing only in September2018 to Dec 2018.JoMoney wrote: ↑Thu May 05, 2022 7:21 pmNo it's not, they were raising rates in 2018 as stocks fell... people were calling it a "taper tantrum".invest2bfree wrote: ↑Thu May 05, 2022 7:14 pm This is the first time in a long time like in 1981 that Fed is raising rates as the markets are crashing.
...
Despite what some people seem to think, it's not the Fed's job to prop up the stock market.
Fed Funds rate was 1.91 in September 2018 to 2.40 in December 2018 before it quickly backed off after a 25% sell off.
We are already into a 14% sell off and Fed is just getting started at .75% expected to go to3%.
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Re: Markets are crashing As Fed is raising Rates
I was getting a bit spooked at the US market levels at the end of 2020 / beginning of 2021. S&P 500 is still up over 12% since then, and up over 33% since the beginning of 2020 (roughly 18 months ago, and that's BEFORE the COVID drop! which was much deeper than anything we've seen yet this year)
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Re: Markets are crashing As Fed is raising Rates
right, which is why he will be remembered for (among many things) repeatedly saying "stay the course". That's counter to predicting what might or might not happen. This is consistent with him saying countless times that "nobody knows nuthin'".NYCwriter wrote: ↑Fri May 06, 2022 1:57 amYou forgot to mention his prediction in 2018 that the market would return a paltry 3-4% at best....arcticpineapplecorp. wrote: ↑Thu May 05, 2022 8:05 pmmy crystal ball is cloudy.
making predictions is hard, especially about the future.
“The idea that a bell rings to signal when investors should get into or out of the market is simply not credible. After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently.”
— John C. Bogle
On the importance of sticking to your plan, no matter what happens:
“The winning formula for success in investing is owning the entire stock market through an index fund, and then doing nothing. Just stay the course.”
— John C. Bogle
......
source: https://financinglife.org/bogle-quotes/
In general, his advice was great. But he was as much a failure at predicting what the market would do as anyone else.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions |
Re: Markets are crashing As Fed is raising Rates
Masters in Economics here. A simple fact that almost everyone forgets is that the economy is cyclical. Just like the sun will always rise in the East, the economy will over heat and head to a recession and then go back into expansion. I recall reading somewhere that the peaks and troughs for recession and growth are now getting longer and larger as globalization takes place.
The pandemic, the war in Ukraine, globalization, inflation all hastened the move towards a recession which was going to come anyway. The difference is how the Fed and global politics affect the "landing" in the US of A. In addition to these issues there are supply issues. If you read some of my earlier posts on the disconnection between the global economy in 2020/2021 and the market, people very rightly said the economy is not the market and vice versa.
There is always a recession on the Horizon, all that should matter to you is can you weather a recession based on your asset allocation and remember its time in the market and not timing the market.
The pandemic, the war in Ukraine, globalization, inflation all hastened the move towards a recession which was going to come anyway. The difference is how the Fed and global politics affect the "landing" in the US of A. In addition to these issues there are supply issues. If you read some of my earlier posts on the disconnection between the global economy in 2020/2021 and the market, people very rightly said the economy is not the market and vice versa.
There is always a recession on the Horizon, all that should matter to you is can you weather a recession based on your asset allocation and remember its time in the market and not timing the market.
Re: Markets are crashing As Fed is raising Rates
I still have some Vanguard Large Cap (VV) from TLH'ing in December.invest2bfree wrote: ↑Fri May 06, 2022 7:17 amIn 2018, Markets started crashing only in September2018 to Dec 2018.JoMoney wrote: ↑Thu May 05, 2022 7:21 pmNo it's not, they were raising rates in 2018 as stocks fell... people were calling it a "taper tantrum".invest2bfree wrote: ↑Thu May 05, 2022 7:14 pm This is the first time in a long time like in 1981 that Fed is raising rates as the markets are crashing.
...
Despite what some people seem to think, it's not the Fed's job to prop up the stock market.
Fed Funds rate was 1.91 in September 2018 to 2.40 in December 2018 before it quickly backed off after a 25% sell off.
Re: Markets are crashing As Fed is raising Rates
Assuming you are gainfully employed, putting money into your 401k, and in the accumulation phase, a stock market downturn might be the best thing that could happen for you. You will be buying more shares each month and your future self will benefit from the downturn.DarkMatter731 wrote: ↑Fri May 06, 2022 1:15 amI... I wasn't alive in 1998.zaboomafoozarg wrote: ↑Thu May 05, 2022 9:34 pmIt is funny how few people on the internet seem to remember 2018, let alone 2008 or 1998.
This is the first time I've personally experienced a high inflation environment. If there's a recession, it will be the first where I'll be affected by it.
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Re: Markets are crashing As Fed is raising Rates
Yep. Apparently, one of the reasons the Fed delayed tightening when inflation was staring them smack in the face is they didn't want to shock the market.rockstar wrote: ↑Thu May 05, 2022 7:57 pmHowever, you if you read Ben's book about his time as chairman, the Fed absolutely monitors markets.nisiprius wrote: ↑Thu May 05, 2022 7:51 pmIndeed. To be clear, the Fed's job is written into law, the so-called "dual" mandate, and it is:Nothing in there about the stock market.to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates.
It's normal and to be expected that if interest rates rise, the market value of both stocks and bonds will fall, and for the same reason. They both represent dollar benefits that will be paid sometime in the future.
When interest rates rise, dollars that will be paid in the future are worth less today than they were. When the interest rate is 1%, $100 today will grow to $101 in a year. So $101 you will get a year from now is worth $100 today. So $100 a year from now is worth about 1% less than $100, or about $99.
If the interest rate rises to 2%, $100 a year from now is only worth about $98 today.
When interest rates rise, promises of future money become worth less today.
Both stocks and bonds represent a hope of future dollar benefits. They are an estimate of prevent value of future payments. If the future benefits don't change, then a rise in interest rates makes both stocks and bonds worth less today, and their present value falls together.
From a CNBC article today, "Bernanke says the Fed’s slow response to inflation ‘was a mistake’":
Bernanke said he understands why the Powell Fed waited.
“One of the reasons was that they wanted not to shock the market,” he said. “Jay Powell was on my board during the Taper Tantrum in 2013, which was a very unpleasant experience. He wanted to avoid that kind of thing by giving people as much warning as possible. And so that gradualism was one of several reasons why the Fed didn’t respond more quickly to the inflationary pressure in the middle of 2021.”
Bernanke’s new book, “21st Century Monetary Policy: The Federal Reserve from the Great Inflation to COVID-19” gets released tomorrow, but it's $35 in hardcover on Amazon, at least.
Re: Markets are crashing As Fed is raising Rates
I'll wait for a bear market on that price.Robot Monster wrote: ↑Mon May 16, 2022 9:06 am Bernanke’s new book, “21st Century Monetary Policy: The Federal Reserve from the Great Inflation to COVID-19” gets released tomorrow, but it's $35 in hardcover on Amazon, at least.
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Re: Markets are crashing As Fed is raising Rates
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This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
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Re: Markets are crashing As Fed is raising Rates
Based on years of experience, this.MTKRC wrote: ↑Fri May 06, 2022 11:54 am
Assuming you are gainfully employed, putting money into your 401k, and in the accumulation phase, a stock market downturn might be the best thing that could happen for you. You will be buying more shares each month and your future self will benefit from the downturn.
And for those of us that are near the withdrawal phase our asset allocation means we're positioned to weather this without losing sleep. My to do list: Do a little more consulting so I can reduce my withdrawals and my future self will have a few bucks more.
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Re: Markets are crashing As Fed is raising Rates
Looks like my thesis is going to play out.invest2bfree wrote: ↑Thu May 05, 2022 7:14 pm This is the first time in a long time like in 1981 that Fed is raising rates as the markets are crashing.
https://fred.stlouisfed.org/series/FEDFUNDS
Also Bonds are selling off at the same time Stocks are crashing.
If the Fed Funds rate is going to be 3% then it is going to be 5 more months of the rate increases.
If you look at the Dollar it is going up as we speak without even serious sell off. I cant believe what will happen to the dollar when the markets crash 40%.
https://seekingalpha.com/symbol/UUP
Is there going to be a massive crash ahead?
There is no way markets are going to reverse until Fed reverses.
We have a good three rate hikes, then we pause. If rate hikes continue then all bets are off.
36% (IRA) - Individual LT Corporate Bonds , 33%(taxable) - schy, 33%(taxable) - SCHD Dividend Growth