Effects Of The Rate Hike On The Trading Market
The rate hikes are some economic tradeonlinemarket by the means of which the Central Banks try to curb the economic growth of a certain country in order to fight inflation without derailing the economic expansion of the country. When the Federal Reserve increases the rates, this means that a certain country needs to rebalance its economic situation. It is important for traders to know that these changes have an immediate effect on the trading markets even though sometimes they are relatively small changes of only one-quarter point, as it has happened in the period between 2004 and 2006.
The general reactions to the increase of the rate hikes are those of the decrease of the stock market. This is due to the fact that companies find it more difficult to borrow money in order to finance their operations when the rates are higher. If a company has to struggle in order to grow, this means that its stock value is to decrease. Also, bond prices are to be affected by the growth of the interest rates because investors will never be interested in paying a bigger price for an existing bond which is to sell at a smaller value.
Traders cannot control the evolution of the interest rates, but they can control their reaction to the increase. In order to manage to do this, investors should consider building a diverse portfolio of stocks, government securities, deposit certificates, bonds and other securities so as not to find themselves affected by such a decision. Moreover, you should consider the fact that there are some holdings, such as the stocks emitted by financial services companies, which benefit on behalf of the growth of the interest rates. Traders should also focus on purchasing only high-quality stocks because they are the only ones which are to resist on a long-term basis and which are not to be majorly affected by the fluctuations of the interest rates. Moreover, great products and services are always to be desired, so their value is unlikely to change unexpectedly. When having high-quality stocks, you can postpone your selling moment as you know that the price of the stocks is to come back to its real value. You should also consider purchasing bonds which have different maturity level, meaning that you will always be able to trade some of them for a good price.