Showing posts with label US. Show all posts
Showing posts with label US. Show all posts

Sunday, 13 December 2015

US: The possibility of a rate hike

At this moment, the financial world couldn't have paid more attention to the next FOMC meeting on 15-16 Dec than any other thing.

Having kept the interest rate at 0.25% since Dec 2008, you always read news reporting the possibility of a rate hike in the US interest rate. This type of news is even more frequent this year, but there was no rate hike then.

In theory, a rate hike would be detrimental to the stock market. Therefore, whenever the stock market drops "considerably" in one day, the possibility of a rate hike will be the culprit. This is the case for last Friday when the US market once again bore the brunt and dropped sharply. Dow Jones and NASDAQ plunged 1.76% and 2.21% respectively while the Brent and WTI crude oil prices have slumped 4.53% and 3.10% respectively to a new low.

This causes a great pessimism in the market sentiment. People say that the market is going to crash after the rate hike. Yes, it does sound scary. But really? I mean, since when does a stock market crash become predictable? Let alone that the possibility of a rate hike has been rumouring in the market for months if not years such that the news would have been absorbed by investors and the effect would have been reflected in the current market.

Thinking from a different direction: would it be that there is no rate hike in the coming meeting, or that the rate hike is smaller than expected, such that the market is going the opposite direction as to what the public expects? Isn't this the way how the stock market works?