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Federal Reserve Drivel

Partners' Network Blog

Last week a great jobs report sent the stock market down. It would seem to me that a strong and ever-strengthening economy would be good news that would drive the market up; but not so.

I recommend people invest in the stock market if they believe the American economy would be stronger in ten years, and that that strength would be reflected in increased values of a broad-based diversified stock portfolio; and if they think not, then they should stay away from stocks. Yet, the opposite just occurred. The market dropped on good news. To me, that’s nonsensical drivel.

The market dropped because the “brains” behind Wall Street believe that a strengthening economy will cause the Federal Reserve (the Fed) to refrain from reducing short term interest rates and that would put a damper on the economy’s growth, thus a drop in stocks.  Bull doody!

The short term rate is extremely low – a quarter or half point either way at this point should have no effect on business investment. Further, the longer term rates which are determined independently of the Fed have a greater effect on investment spending and growth, and these are also pretty low.  Changes in either or both rates should not halt or encourage such spending at this time.  Uncertainty because of the political climate probably has a greater effect on the spending and the Fed certainly has no influence on that whatsoever.  Thus the market moves are temporary actions which I feel will be quickly reversed if the job trend continues.

Financial planning and investing is a long term endeavor.  I suggest your sights be set on where you think the market, i.e. the economy, will be in ten years and make your decisions accordingly.  As I always said, ignore the short term swings if you believe the long term trend is upward.

Oh, pay attention and read about the Fed’s actions if you feel you have nothing else in your life to occupy your time.  But if you do read about it, then ascribe to the Fed’s actions the real attention it should get…which is none!

Do not hesitate to contact me with any business or financial questions at emendlowitz@withum.com or  fill in the form below for additional information.

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