The Federal Reserve issued rate guidance this week and board of governors indicated the target fed funds rate will likely remain between 0% – 0.25% into 2023. This could signal a buy signal for the stock market because investors will be driven to bid up risk assets in a 0% interest rate environment. Fixed income and conservative investors will be driven to stocks to chase yield and income, while bonds on the shorter end of the curve yield very little for the amount of risk taken. The good news is Treasury will be able to issue debt for nearly 0% and pay off longer term debts that have a higher interest rate. Overall, inflation has been stagnant over the past 10 years and any action the Fed can take to spur inflation will be welcomed by the markets.
The broad indices are still in uptrend, even with the most recent pull back. Investors are trying to gauge whether the easy gains have been made or there is further upside and new all time highs on the horizon. Whatever happens over the coming weeks will be influenced by the winds from the upcoming presidential election. This years election is the most contentious in recent history and investors are looking for any signs towards the outcome. Some investors feel Biden could be a near term headwind to the market because he has vowed to raise corporate taxes and capital gains rates. Whereas other groups of investors believe Trump’s policies are too erratic and not good for the overall trend in the US economy. Whatever your political beliefs, this election will cause volatility in the coming weeks.
ALL INVESTMENTS INVOLVE RISK AND YOU SHOULD DO YOUR OWN INVESTMENT RESEARCH BEFORE MAKING ANY INVESTMENT DECISIONS. SPEAK TO A FINANCE PROFESSIONAL TO FIGURE OUT WHICH STRATEGIES ARE SUITABLE FOR YOUR PORTFOLIO.