After several months of anticipation and speculation, the US Federal Reserve has finally moved interest rates from a historical low of 0.25% to 0.50%. While a move of 0.25% doesn’t seem like such a big deal, the uncertainty around the rate decision has been weighing heavily on the market and if there is one thing the market doesn’t like its uncertainty.
On one side of the coin higher interest rates, mean higher borrowing costs for geared investments, making borrowing to invest less attractive, causing markets to fall. On the other side of the coin, the reason for the increase is because the US economy is strengthening which should mean the market goes up.
The net result is that when the decision the market went down, then it went up, now it’s coming back down and ultimately still has no idea what it’s doing. It’s like giving a child a screw driver and leaving them unattended, there’s a chance that mayhem and destruction will ensue, but there’s also a chance they could build something.
So the question is, where to from here?
Ever since the November Non-Farm Payroll decision in November it appears that the market has been pricing in the rate hike which caused the fall in the past few months. Now that the decision to increase rates has finally been made, the cloud of uncertainty has been lifted and hopefully fundamentals of the underlying companies can drive the market.
The market is still processing the news but we are starting to see positive signs as the ASX opens.
At this stage there is value in remaining with long term strategies as 90% of performance is driven by Asset Allocation, and only 10% is market timing. The true key to making money in the market is buy quality assets, regularly, over time and only take as much risk as you need to reach your goals.
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