The release of the July Federal Reserve Governors meeting minutes yesterday confirmed the timing of the Federal Open Market Committee’s (FOMC’s) intent and plans to cut back (taper) its monthly bond buying program using a slow but steady method. As we predicted, the stock market continued to decline from its recent highs due in large part to the Federal Reserve’s removal of its “easy money” monetary support policy. Interest rates have been climbing for over 9 months with the key 10-year U.S. Treasury rate going from 1.35% to over 2.93%, an increase of 117%. As a result, bonds, utilities, and real estate investments have declined dramatically in this period. We sold many of these holdings many months ago to manage the negative impact of higher interest rates.
At a certain level, stocks also do not like rising interest rates, because high interest rates adversely affect the profitability of businesses, consumer spending, and the cost of government. As a result, we anticipate that stocks will continue to adjust their prices downward to reflect these new realities. Stock prices for the next few months could be quite volatile as stocks adjust to higher interest rates and their impact on business profits and the overall economy.
How do you deal with a stock market that is up one day and down the next? If you are holding quality companies, you do not need to do anything. If you are holding cash, you should look for opportunities to invest the cash by buying the stocks of quality companies whose price may be temporarily depressed by market actions. This approach is reflected in the “Current IBSS Rating” column of our FunStocksIndex, when we suggest changes of actions (indicated by red text) to either Accumulate Slowly (AS) or Buy Now (BN). Be sure to check our FunStockIndex at least once a week for status changes of the IBSS Ratings for these companies.
Midweek Stock Market Report
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