The Fed Implements Another 75 Basis Point Rate Hike
Earlier this week, Fed Chairman Jerome Powell implemented another 75 basis point rate hike for September. The reason? Inflation in the US economy came in hotter than expected for August, and the Fed has reiterated that taming inflation is the most important step to strengthening the economy. While this is all fine, it has left stock investors out to dry. The Dow Jones officially re-entered bear market territory and took out its previous lows for the year. The S&P 500 and the NASDAQ continue to fall lower, completely erasing the bear market really we saw earlier in the summer.
For now, it looks like we’re in this one for the long haul. While growth and tech stocks continue to trend lower, we should keep our focus on what kind of investors we are. If you’re a long-term investor like me, then it might be worth adding to some stocks that are in oversold territory. Stocks like Meta Platforms (NASDAQ:META), AMD (NASDAQ:AMD), and Alphabet (NASDAQ:GOOGL) come to mind.
If you’re a trader, then you probably aren’t as bothered by the volatility in the markets. Traders can benefit in any type of market so you’ve likely been playing both sides of these big market moves anyways. So what should we be thinking for the second half of 2022? Here are my thoughts.
More Pain Ahead But It’s a Good Time to Buy
First of all, don’t get your investing or financial advice from Twitter or Reddit. There are plenty of Furus on these platforms that have been exposed for being liars. If someone seems overly bearish or bullish, they are likely trying to support their own trades or positions. Always do your own research and due diligence into investments you want to make. Also keep in mind that most accounts with lots of followers on Fintwit are traders and not investors. These two groups will inherently have different opinions and thoughts on the market.
As for the fourth quarter, I think we’re in for some more choppy price action. I just don’t see much in the way of a positive catalyst unless inflation suddenly shrinks in September and October. Now that the averages are back to previous lows, I think it’s absolutely time to start Dollar Cost Averaging into stocks you think will do well five or ten years from now. I’m not talking about stocks like AMC (NYSE:AMC) or Bed Bath and Beyond (NASDAQ:BBBY). I’m talking about strong businesses with high cash flow and the potential for long-term growth.
It just isn’t reasonable to try to time this market right now. In my opinion it’s better to ease into things and lower your average cost in positions. If you are having trouble deciding on a stock, there’s never any shame in adding some ETFs that are trading at lower prices right now too. A major part of my personal portfolio is in high dividend ETFs that provide dry powder to add to my other long-term positions. Until we see inflation stabilize, we likely won’t see any Fed pivot to a dovish stance. Buckle down everyone, this could take a while!
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