It is not easy to know the factors that cause rising and falling of stocks within a short period of time. But one major factor involved might be involved, is a Federal Reserve that has been raising the interest rates. Economy experts have debated what impact of rising rates can cause to stocks and investors’ portfolio.
Flashback the past 70 years history when each month the interest rates were higher compared to the prior 12 months. In simple terms, a stock increase likely to be three times lower during the rising rate surrounding than other environments, but they are positive. As we go deeper we can conclude that as the market decrease on a rising rate surrounding average, still there is a precedent history for it to go higher during this period.
Why stocks go down when interest rates rise
When an interest rates rises, the cost of lending money increase, hence makes most people reluctant to loaning money so as to develop new projects.
Likewise, when interest rates rise, most people will make an extra return on their funds by putting money in the bank due to high-interest rate yield. These two reason influence stock prices. For more information visit here hibenjamin.com.
The slowdown of the economy
As interest rates goes higher, to finance new project will become much expensive, thus most people will avoid developing the project. Therefore, it will result in the economic downturn since the activities of the business as went down.
This will make some investors sell their business fearing that they might experience losses due to interest rate changes. If the impact of the changes of interest was not felt, then the stocks prices will go up depending on the future expectation but not a current outcome.
For instance, if a particular wholesale store that they intend to double their profit next, their shares will increase even before next year.
What a risk-averse investor should do
It is sensible that always you should invest in a market but not just to buying or selling depending on predictions on if the market will go up or even down. According to economic research, to try to predict the market status is not wise.
However, it just a comfort toward the investors or even a savior who is afraid of losing any of their finances, but they still intend to obtain some of what upside the market can provide.
It is good to be safeguarded from a circumstance where a market goes down but still it participate in a various increase on the upside. Actually, it is possible to create a portfolio whereby you get several market upside as they are being protected from whichever money loses.