Stocks - What to Do When Interest Rates Will Rise
Stock-Markets / Stock Markets 2014 Jun 29, 2014 - 02:53 PM GMTBy: DailyWealth
Dr. Steve Sjuggerud writes: Most experts don't want to admit it... but there's actually plenty of room for stocks to go much higher from here – even through the end of 2016.
We certainly have some signs of a market top out there... But before you sell everything, I urge you to seriously consider today's essay.
Most folks are scared of what happens when the Federal Reserve raises interest rates. But if you share that concern, I have an important message for you...
The end of zero-percent interest rates doesn't mean the end of rising stock prices.
Let me explain...
So when will it finally happen?
When will the Federal Reserve finally raise rates?
If we look to the Federal Reserve committee members, the answer is clear...
Last week, the 16 members of the committee gave their best guesses for interest rates at the end of the year for the next three years. Take a look:
Clearly, the Fed will not raise interest rates this year. Clearly, they will raise them sometime in 2015.
What exactly will it mean for stocks when the Fed raises rates next year?
Most people think "it's all over" when the Fed raises interest rates. But history tells a different story...
For example, the last time the Fed raised rates was from 2004 to 2006. The S&P 500 Index soared from around 1,000 to around 1,500 – a 50% gain, before the Fed cut rates in 2008. Take a look:
Interest rates soared. And so did the stock market.
This wasn't a one-off occurrence. Over the last 30 years, every time rates have gone up, stock prices have gone up. (I fully explained this idea in my March 10 DailyWealth.)
Why have stock prices gone up every time the Fed has raised interest rates over the last 30 years?
In short, people see the hike in interest rates as a sign that the economy is doing better – that it doesn't need help from the Fed anymore. So they buy stocks.
The conventional thinking out there today is that the stock market boom will end when we see the end of zero-percent interest rates. But history is clear on this one – rising interest rates aren't necessarily bad for stocks. The conventional thinking today will likely turn out to be wrong.
So you don't want to sell just because we reach the end of zero-percent interest rates – based on history, that would be foolish.
Good investing,
Steve
The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.
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