There are two things that are really important to look at following the Fed’s first interest rate rise in nearly 10 years. The first is what happened following the positive reaction worldwide on day one? And second, what have we learnt that will help us invest going forward?
Wall Street, Asia and Europe lapped up the Fed’s overdue decision, with solid rises on stock markets but the smarties playing the New York Stock Exchange on the Thursday of the 17 December gave negativity a try so, at 11am US-time, the Dow was down 150 points early.
The early sell-off wasn't a surprise as there was probably profit-takers, who wanted to pocket the Fed-related gains in the days following the rate hike before seeing where the sentiment wanted to take stocks.
Also, the other pesky issue right now — oil and other commodity prices — again have retreated so it would be naïve to believe that this negative force has been KO’d by the Fed decision.
I think the focus will now go onto the macroeconomic story for the US, as some would argue that higher interest rates — albeit not very high — could slow the economy down.
Against some negative readings, the Yanks did get some solid housing data this month and let’s face it, the Fed must have a pretty positive view on the US economy to start the interest rate rising process.
There’ll always be dramas testing out the market. Right now, we have oil and iron ore prices. It was: will the Fed raise rates? That one has gone but now we’ll look for any signs of a US slowdown, while on the other side of negativity there’ll be those looking for signs of inflation!
These opposite views on matters of importance for stocks explain why some days have been up and some down.
Our stock market nearly hit 6000 early in the year but then fears about China, Greece, a Fed rate rise, our own slower economic growth and then the commodity price slide added to the gloom. It all created a new view and lower share prices.
I liked the reaction to the Fed rate rise as it was positive. Some time ago, a lot of experts were tipping a Wall Street dumping on the first rate rise and a bond market implosion but none of these experts will be putting out any public ‘mea culpa’ statements!
We still have to work through issues such as energy prices but, at this stage, it looks like the smart investors in the market are having sway over the smarty speculators. And that’s the way I like it!