Rate Hikes Hurt, But It’s Not All Gloomy

December 24, 2018
493 Views

Nobody was surprised last week when the Federal Reserve raised interest rates for the fourth time in 2018. While some hoped for an early holiday gift in the form of no rate change, the reality is that the Fed was always likely to stick to its schedule. Rate hikes increase the cost of lending and can give some investors jitters about overall economic potential. In short, they’re not great for the stock market.

Even the President is not happy, but the situation is not as dire as some headlines suggest. Stocks are ready for the right conditions, as long as investors are willing to engage.

Silver Lining but Uncertainty Remains

When the Fed raised interest rates this week, Chairman Jerome Powell announced that there would be just two rate hikes in 2019 instead of the planned three. This was a positive aspect, but it didn’t prevent stock market losses after the announcement.

Markets are volatile now, but things could get much better in 2019. Some economists even predict that the Fed could hit the brakes completely. Economics Professor Tim Duy from the University of Oregon said in a blog this week that “If the economy turns slower more quickly than anticipated, this will be the last hike for some time if not the last hike of the cycle.”

A Wall Street Journal poll also revealed that while 48% of economists believe the next rate hike will come in March 2019, there is a significant minority of 28% that believes the next hike won’t be until mid-year. Any form of increased stability would benefit stocks.

How the President Feels About Rate Hikes

President Trump’s disdain for Fed rate hikes can be clearly seen in numerous Tweets that he’s posted this year. He has also spoken on camera many times, saying that the Fed is moving too fast with its hikes while the economy is performing well.

According to a Sunday report in the Wall Street Journal, White House advisors have even discussed a meeting between Trump and Powell, although no plans have been confirmed. In any case, Jerome Powell isn’t the most popular man in either the White House or on Wall Street.

Refresh and Prepare for Trading in the New Year

2019 is right around the corner and there are still countless opportunities for investors. Many tech stocks are undervalued, simply waiting for the right conditions to bounce back. Biotech stocks are also highly promising.

Fed hikes have hindered the stock market, but there are other signals at play. Tariffs, trade uncertainty, and even the knock-on effect of volatility itself have all contributed to slides across indexes. Any slight change in conditions could bring some much welcomed good news in the new year.

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