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[Market Outlook] Walking The Tightrope... How to Adjust Your Portfolio to Handle Rising Rates

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Sun, Mar 20, 2022 02:25 PM

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Most economists believed the Fed should have taken this action several months back. As we have discu

[Company Logo] Walking The Tightrope... How to Adjust Your Portfolio to Handle Rising Rates By Keith Schneider and Donn Goodman After many months of speculation, the Federal Reserve finally took away the punch bowl. This ended speculation of “when” and followed their action of reducing an accommodating stance. They began to reduce their bond buying a few months back, so the inevitable Fed Fund raise was just a matter of time. [image] Most economists believed the Fed should have taken this action several months back. As we have discussed here over the past few months, inflation is soaring. Raising interest rates is one of the fastest and most powerful methods used to slow down the economy and eventually lessen inflation. Inflation was exacerbated by the recent incursion by Russia into Ukraine. As illuminated by us previously, the battle in Ukraine slowed if not stopped, the exporting of many agricultural products including fertilizer, wheat and other cooking oils and necessary food sources by numerous European countries, like Hungary and Italy, afraid they will not have enough food for their own citizens. Due to the out of control rising prices in just about every category that many had expected a much more aggressive action by the Fed. Estimates ranged from a quarter of a point to a full point. With the first interest rate rise in more than 4 years, the Fed voted to raise the Fed Fund rate by a quarter of a point. They also broadcasted as many as 6 more raises during 2022. The Fed Chairman Powell also reiterated that if they eventually get to their target rate of 1.75% or higher in Fed Funds, the economy is strong and resilient enough to withstand the brakes being put on with little to no chance of a recession. The Stock Market Reaction. Is it Time to Buy? The relief that the Fed was beginning a cycle of tightening but not too fast, along with a prognostication that the economy could withstand these rises, gave investors something to cheer about. Traders covered their shorts and put cash to work. This news helped propel stocks to have one of the best weeks since November 2020. Fresh buying power lifted stocks out of correction territory and up over 5% for the week on the S&P 500 (SPY) as well as small cap stocks (IWM). The Nasdaq 100 (QQQ) did even better and rallied up over 8% for the week. See charts below: [image] [image] There is a historical precedent that when you have at least 3 days of the S&P 500 being up more than 1%, it is predictive of a good market in the future. Please review the following table to gain insight into this historical phenomenon. [image] Interest Rates Moving Forward Will this be the right medicine for rising inflation? Will these moves begin to slow down the economy with the correct dose? Will rising and high (and harmful) prices begin to come down? Will the average consumer be able to navigate in this red-hot economy? When will gas prices level off or even begin to recede? These are important questions that the Federal Reserve will have to weigh carefully as they determine if more, not less, Fed Fund increases will do the trick. We at MarketGauge were surprised that the Fed only chose to do a 25-basis point (quarter of a point) increase. We, like many others, thought a larger initial increase was warranted. However, we are reminded that when you go from zero in Fed Fund rates (with accommodation in bond buying) to a quarter point, this is perceived as a large jump. But is it large enough? The Federal Reserve now walks a very narrow tightrope. While their greater interest is in stopping the rate of inflation, they don’t want to send the economy into too fast of a slowdown that could cause a recession. The Federal Reserve is charged with keeping inflation in check. That rate is still targeted at 2.0% annual. If they only bring it down to 4.0% or 4.5%, which is expected later this year, will they have to slam on the brakes more? Will that send us into a recession? Click here to continue with 8 suggestions for managing your money in a rising interest rate environment, this week’s noteworthy market conditions, and the weekly Market Outlook video. [Click here for the Free Video and Market Highlights]() [Click here for the Premium Video and Market Highlights]( Best wishes for your trading, Keith Schneider CEO MarketGauge Get more - follow us here... Twitter [@marketgauge](=) and [@marketminute]() and [Facebook]( To stop receiving this go [here.]() Got Questions?Office hours 9-5 ET (New York time) Email: info@marketgauge.com Live Chat: Go to bottom right corner of our [home page.]( Call: 888-241-3060 or 973-729-0485 There is substantial risk of loss associated with trading any securities including and not limited to stocks, ETFs, futures, and options. Only risk capital should be used to trade. Trading securities is not suitable for everyone. No representation is being made that the use of this strategy or any system or trading methodology will generate profits. Past performance is not necessarily indicative of future results. To unsubscribe or customize your email settings, [click here](=). "Market Intelligence at a Glance + Tools For Serious Traders" [Unsubscribe]( MarketGauge.com 70 Sparta Ave, Suite 203 Sparta, New Jersey 07871 United States (888) 241-3060

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