The US economy has been slowing. The recent increase in interest rates by the Federal Reserve has not done any good for the economy and the stock market.
In December 2015, the Federal Reserve raised interest rates by 25 points. They did it because the economy was doing well according to them. Back then they said that you can expect this 25 point increase in each of their upcoming meetings over next 2 years. How did the market react to it? Well, the market didn’t react favorably. Bond yields were seriously affected. The stock market dropped 12% from December to February.
The economy wasn’t strong enough?
Yes, that’s what Federal Reserve tells us now. Recently, the Federal Reserve said that economy wasn’t strong enough to sustain another 25 point increase at this point. Moreover, they made it clear that they would go for a longer and slower increase in the future. The stock market seems to have liked the new comments from the Federal Reserve. Since February 11, the stock market has rebounded. But after surging for 3 weeks, it has gone back to where it was in January this year.
Buy stocks now?
Well, after the Federal Reserve made those comments, floor brokers on TV have been saying that you should be buying more stocks. Really? Is that a good idea?
- That doesn’t make any sense as we all know the economy is not doing well.
- Well, you have got to remember that when people buy stocks, floor brokers stand to benefit.
- You should listen to the data now. It indicates that economy is slowing down globally and the ripples are being felt in the US economy as well, even though we have one of the strongest economies in the world.
- Everything is declining at the moment, be it consumer consumption, labor, corporate profits, consumer confidence etc.
- Industrial production is going down the spiral as well. As we all know, industrial production is the backbone of any economy.
- As for the housing industry, the builder confidence is the lowest in the last 9 months.
- Costco registered no month to month growth in the past few months.
- Tiffany is another company that is struggling as they are dealing with sales declines.
Did the Federal Reserve do the right thing?
So, the latest admission of the Federal Reserve is a good thing or a bad thing? At the moment, it looks like a really good thing. By admitting that the economy is not as well as thought, the stock market has breathed a sigh of relief. However, don’t fall for the over enthusiasm of the Wall Street System? They want you to buy more stocks; that’s all. They have been singing this song every time federal cuts were introduced. If you are looking for an Advice To Stock Investors In A Rough Market Scenario, Click Here.
The fact of the matter is that central banks across the world are not as powerful as you think to overturn the economy. They might not be able to control it even after taking extraordinary measures. Even though stock markets surged last month, the underlying economic data suggested the weakness. So, before you get excited, you need to look at the overall data. A slowing economy can definitely slow the stock market as well. But you need to understand the fact that it is a global phenomenon and you need to be patient. Things are not what it seems right now. So, the stock market is bound to get affected by the slowing economy.