The Fed raises rates: how does it affect the stock market?

The Federal Reserve of the United States (FED) has moved to the final tab, as pointed out by some of the most refined financial analysts. Because in effect, it has decided to raise rates by a quarter point, to the level that is between 1% and 1,25%. But the most important thing is what it says in its subsequent statement, by stressing that it is willing to reduce the size of its balance sheet. This in practice means that if economic conditions demand it, the institution will not hesitate and could use a new QE.

In any case, the latest published data clearly show that their economic forecasts. As a consequence of them, they warn that a possible economic recession is not contemplated in your forecasts. In a way, it is the face and the cross of this relevant news that will have enough repercussions in all financial markets. Where, of course, the bag is present. To the point that it can lead to a variation in the composition of your new investment portfolio.

In addition, in its suggestive press release, the Federal Open Market Committee (FOMC) points out that "the labor market continues to strengthen and that economic activity has grown this year." Another relevant data that emerges is that of household spending has rebounded in recent months. A series of data that will be analyzed in the coming days by all financial agents. And from where they can get more than one idea to take them to the always complicated world of money.

How is the rate hike received?

On the other hand, the FED also "expects to start implementing the reduction this year, if the country's economy evolves as expected." Although they are giving many details on how to do it. Although it can affect those bonds that come to maturity. For the moment, the reaction of the financial markets has been moderately bearish. With a depreciation of the United States stock market around half a percentage point. In similar proportions to the equities of the old continent, including the Spanish.

Of course, the first reactions of investors are not exactly positive, far from it. To the point that it is collected with important sales in the trading sessions after the publication of this important decision. For later stabilize stock prices. In any case, it is not set up as a trigger to boost equity markets around the world.

This scenario causes short-term operations to suffer more or less intensely. With an important advantage of the short positions over the buyers. It can be used to collect capital gains or even to take advantage of the declines of these days to buy the shares of listed companies at a much more competitive price. Depending on the investment strategies that each of the users in the financial markets have in mind. And now may be that moment after the US rate cut.

Economic data after the meeting

Not only have interest rates been lowered, but the FED has released its projections for the American economy over the next few months. In this sense, it should be noted that its growth forecast for this year by one tenth to 2,2% and it keeps them unchanged for 2018 and 2019. While another part estimates that inflation will remain at 1,6%, that is, three tenths below the estimates of last year. Data that will be looked at with a magnifying glass by investors that will determine what their decision will be to make their savings profitable.

Regarding the decisions taken at the meeting, the members of the FED have not made any changes to their forecast for interest rates. Only the one that we have been exposing and that assumes that the interest rate on the other side of the Atlantic will be set at 1,4%. In any case, it represents one more rise in this year, without further rises being ruled out in the remaining months. Moreover, it is what many of the most important financial analysts anticipate.

How does it affect users?

For the moment, this monetary measure will not have much impact in the euro zone. As we have been explaining, in the short term it may imply a profit collection by large and small investors. Although it is not expected to reach levels of other occasions. However, these effects may be blurred by a correction in equity markets. To the point that it will be much more difficult to quantify the true effects of this rise in American interest rates.

But in this case, what is bad for equities is positive for the fixed. Because in effect, it will generate that banking products for savings increase their profitability a little. To offer better profitability to your customers. In any case, this change will not reach the markets of the old continent, which will not feel any effect. In this sense, you can rest assured because it will not affect your term deposits, bank promissory notes or high-paying accounts, among the most relevant models. Only among the users of the other great economic area of ​​the world.

In what it can generate more movements is that there is greater volatility in the different financial markets. And whose movements can be used by traders to carry out its operations. With greater differences between the maximum and minimum prices. If you are agile in your operations, you will be in perfect conditions to make your operations profitable from now on. Although with greater risks in operations. Where the currency market will be its greatest exponent, being one of the most affected by the monetary policy of the FED.

Situation of interest rates in Europe

With all the certainty that what will matter most to you is what happens with the monetary police in the euro zone. It is where it will affect your money the most. Well, in this sense everything will continue as before. Because indeed, there has been no news. And in this sense, the stock markets have no other condition to develop their evolution in the financial markets. Neither in one sense or another, as is happening in recent months. In a way, it is something that should help consolidate the markets.

In any case, everything seems to indicate that the first rate hike in the euro zone could take place at the end of the year. In which case, it could be a factor that encourages investors to undo positions, although away from any kind of scaremongering. But on the contrary, in a controlled way and without many repercussions in the medium and long term. Either way, you should be forewarned so that you can put into practice investment strategies more akin to this new economic and monetary scenario.

On the other hand, you will have no choice but to be aware of everything that could develop in the meetings of the European Central Bank (ECB). Because they can give you more than one clue where the shots will go during the next few months. And so you can even make your movements in equities profitable from these very moments. It will not be an easy task, far from it, but with a little discipline you will achieve your goals with some sufficiency. Don't forget to take it into account if you don't want any negative surprises at some point this year or next.

All the same in fixed income

With regard to banking products and fixed income in general there will not be any kind of news either. That is, with no profitability as up to now. Both in term deposits and in your personal accounts. There will be no changes of any kind, neither for good nor for bad. And all this taking into account what has happened in the United States and that it will not have any repercussions here. If you want to improve the return on your savings you will have no other solution than to wait for it to emulate the performance of the Federal Reserve.

In this sense, the best of the joys you could have is that there is a substantial change in monetary policy by the community authorities. While this is not generated, you will not have to wait for any change in financial products that you have hired at the moment. In any case, it will be a very relevant parameter that you must take into account at all times. Now and from a few months, because it is one of the fixed in the equity markets.

Finally, don't worry about your positions in both equities and fixed income. It will not affect in the least. Another very different thing is what you go through during the next year. Because surely the scenario will not be exactly the same. Where you will have to be prepared to take advantage of business opportunities.