Markets Don’t Agree with the Fed

The Fed’s decision to hike rates again on Wednesday was met with displeasure from equity investors. Stocks saw sharp declines even as the Fed lowered its forecast for next year from three rate hikes to two.

That displeasure was on full display on Thursday, as stocks once again got absolutely rocked. The tech-heavy Nasdaq was down 3% at the lows, putting it down over 20% from its August peak. Although the index recovered a bit, it still ended the session down just under 20% from its all-time high. In other words, the Nasdaq is aggressively flirting with bear market territory, and the sessions ahead could potentially see the index fall further.

The CBOE’s VIX index hit an intraday high around the 30 level but backed off slightly into the close of the trading day. Other major stock indexes did not fare much better and all indications point towards further declines and rising market volatility ahead.

Although the Fed took a more-dovish stance regarding its plans for policy, that stance did not appear to be dovish-enough. Some analysts have suggested that the central bank is hiking rates too fat too fast, and that an overly aggressive Fed could even lead the economy into recession.

The past two days are a great example of how sensitive markets have become to the Fed’s actions and commentary and demonstrate the type of market mayhem that can be seen as rates move higher. It is important to keep in mind that stocks have been moving up over the last decade on the back of ultra-low rates and massive quantitative easing programs. As central banks remove the punchbowl, so to speak, markets will be forced to stand on their own two feet. If the past week is any indication, that may not bode well for stock investors.

Financial markets could have a lot further to fall before a long-term bottom is reached. If stocks have been rising for 10 years, there is nothing to say that they cannot decline for a similar time period. A more plausible scenario, however, is that stocks decline further, eventually find a bottom, and them remain stagnant for an extended period of time. The term “stagflation” is already being tossed around once again and indicates a period of acceleration inflation along with rising unemployment. Such a scenario is a distinct possibility, and investors must act now to stay ahead of the curve.

Given the current backdrop of rising economic and geopolitical risks, now may be the ideal time to add portfolio diversification away from stocks and bonds. A great asset rotation is likely already taking place, and those who are late to the party will be the ones holding the bag when the bottom finally drops out of equity markets.

Investors will likely turn their attention to perceived safe-haven assets during such a period, and gold will likely be at the top of their list.

The Gold market has already started to move higher and has recently cleared key resistance at the October highs around $1252. This could set the stage for a major run higher and a protracted bull market as stocks continue to work their way lower. This key asset class not only comes with significant upside potential, but it may also act as an important hedge against rising inflation and the next recession.

Adding gold to your portfolio has never been easier. Speak with an Advantage Gold account executive today about the potential benefits of gold ownership and to learn how it may play a vital role in your overall investment strategy. Our associates are here to answer any questions you may have and can even show you how to build a significant allocation in this key asset class using your IRA account.

Don’t wait for the next major wave of stock selling or for the next recession to take hold before acting. Explore your options for gold ownership today. Call Advantage Gold at 10800-341-8584 to get started now.

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