Something exciting at last!
The market crashed in the second half of the day after the US Fed announced another interest rate cut by 25 basis points, along with the advisory there may be only 2 more interest rate cuts in 2025.
For weeks, I have been securing profits diligently, even though the market rally seems unstoppable. I am sitting on a pile of cash and I also feel the FOMO, but I have taught myself to not succumb to it.
Throughout the year I have held this risk-averse attitude in anticipation of a recession. I stayed invested in the market, but I have been prepared for the worst by securing profits and maintaining liquidity. The market surprised us all, and yet this strategy helped me stay on par with the indices $NSDQ100 and $SPX500 while maintaining a much lower risk score. This is a common sense strategy aimed to maximize time in the market. But it takes courage and discipline and it always pays off.
The market crashed in the second half of the day after the US Fed announced another interest rate cut by 25 basis points, along with the advisory there may be only 2 more interest rate cuts in 2025. Most of this is inline with expectation and yet the markets have reacted with shock.
Fortunately, I had secured profits from positions like $TSLA (Tesla Motors, Inc.) $META (Meta Platforms Inc) and $TSM (Taiwan Semiconductor Manufacturing Co Ltd - ADR) earlier yesterday and in the past days and I will be looking to buy back during the dip.
There is conjecture on why this news should lead to a fall in stock prices, and there isn't one simple answer. The stock market is a medium of price discovery and in search of the right price the markets over-reach and over-shoot in the short term before oscillating towards a consensus.
There are some valid reasons for concern in the mid-term. The inflation has not come down to the target range and the consumer demand and employment numbers have shown resilience. It does not look like the market needs a stimulus at this moment and there is fear that lowering interest rate at this time may lead to a rise in inflation.
My long-standing thesis explains why gradual interest rate increases or decreases yield unexpected outcomes and why there is a lag for these monetary policies to take effect.
Contrary to expectations, the gradual rise in interest rates during 2023 spurred a buying frenzy in the housing market, as buyers anticipated even higher rates in the future. Only when the interest rates stopped rising, did the real-estate demand finally slow down.
On the other hand, gradual decline of interest rates in later half of 2024 led to a drop in demand as the buyers prefer to wait for a few more months for the interest rates to fall further, before they buy a new car or a new house. The indication that this may be the last rate cut for months to come, may finally motivate buyers to take the leap. This would make money move away from stock markets towards real estate and big-ticket expenses.
I do not expect this to lead to a larger crash though. There is still a lot of greed and FOMO in the market. I will see if I can snap up a few small deals.
Thank you for reading. I look forward to hearing from you.