Stocks
opened cautiously Thursday after two consecutive days of gains as investors
awaited this afternoon’s rate decision from the Federal Open Market
Committee (FOMC). The consensus amongst investors as to whether or not the Fed
will raise rates for the first time in nearly 10 years, is virtually split down
the middle. A coin flip you could say. Recent
economic data has strengthened the case for a Fed rate hike, although mild
inflation numbers and the weakness in China has some analysts calling for a Fed
rate delay. In any event, today’s announcement carries a tremendous amount of
weight. In the short term, nobody knows how the market will react (to a rate
hike or not). In the long term, however, our view is that a rate hike would be a
good thing in terms of normalizing asset prices. In the same way that the
market’s ‘taper tantrum’ was far more muted than expected, we believe a short
term fall on a rate hike will soon be recovered by a strong rally as investors
realize a 1/8% rate hike (or less) has very little impact on global financial
markets. The message coming from the Fed for so long has been ‘be prepared for
a rate hike.’ We think it’s time they deliver on what they’ve said they’d do. In
other news around the world, Asian and European markets closed mixed on the
day. Gold prices are trading flat while oil is up slightly after rallying
yesterday. Interest rates are flat after spiking recently signalling the bond
market may be predicting a rate hike later this afternoon.
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