Ask An Expert: The Fed’s Decision and Volatility

Some investors may have concerns following the Federal Reserve’s recent decision to delay an interest rate hike. Additionally, the current episode of volatility has many investors questioning the market environment. It’s especially valuable, in times like these, to reach out to a financial expert to ask those questions and understand what these events mean for your portfolio and wealth. Apex Financial Advisors’ very own Stuart Caplan sat down and answered a few common investor questions. If you have questions of your own though, then it’s never too late to call an expert at Apex Financial Advisors to get personal solutions to your investment or finance concerns.

What factors are causing market volatility?

Recently, the big cause behind the market’s volatility is uncertainty, in my opinion. The market does not like uncertainty and there’s been plenty of it going around: the Fed has kept markets guessing month-to-month on its domestic rate policy, Draghi and Abe are speculating about how accommodative they want to be in the EU and Japan, respectively, and China is a huge question mark in itself.

Is this a period of market correction?

I think so—and market corrections are part of the normal cycle. Once the market gets the data points that it seeks, the market should resume higher, or at least stabilize in a tighter range.

Is market volatility normal, or do you think that this is a special circumstance?

Absolutely—volatility is a normal function of the market. In fact, the past few years of low volatility and a steady upward trend is more of a market rarity than typical choppy times. While we hear a lot about volatility and the stress it can cause investors, its important to remember that this is actually a very normal part of the market’s cycle.

What are some ways that market volatility impacts investors?

More than anything, volatility impacts the behavior of investors. All the hype about doom and gloom and volatility in the press really impacts the way investors react. As a result, a lot of investors press the sell button in times of panic. That’s actually unfortunate because history shows that such periods are actually ripe with great buying opportunities.

What are some ways the Fed’s delayed decision have impacted the markets?

Well like I mentioned, uncertainty rattles the market and without guidance from the Fed, uncertainty brews. However, the Fed’s decision right now to keep rates unchanged is not as harmful as the absence of a plan for moving forward.

When the Fed eventually raises rates, what kind of impact could that have on the economy?

Naturally I think the eventual Fed interest rate hike will be good for the market. Increasing the fed funds rate by 25bps would still have us in a very accommodative position, while continuing to provide more security to savers.  The higher interest rates on CDs/savings will reduce the amount of risk taking and yield chasing by those on a marginally fixed income. Going further, incrementally higher rates would make loaning money more profitable for banks. More loans equal a greater velocity of money, which means a growing economy—definitely a good thing.  Finally, we could also see an uptick in home sales soon as many house hunters rush to lock in a mortgage ahead of higher rates.

If these (or other) questions have been on your mind lately, then getting answers can help alleviate those investor worries. Uncertainty isn’t great for the market, and it can wreak havoc on your peace of mind. If you’d like to talk about your concerns, then call an expert at Apex Financial Advisors. Our advisors can help you find answers—and opportunities—for your portfolio and personal wealth.