The broader indices have pulled back sharply today, with the Dow dropping more than 450 points so far. What makes this interesting is that I got everything I wanted in yesterday’s Federal Open Market Committee (FOMC) statement. So why is the stock market down today? In today’s blog, we’ll address that very question.
First, as expected, FOMC members voted to raise key interest rates by a quarter of a percentage point. The key interest rate was increased from 1.5% to 1.75%, which is the highest level since 2008. The FOMC statement, however, was largely dovish, acknowledging that economic activity has moderated since the fourth quarter of 2017.
The Federal Reserve also noted that they expect economic activity to pick up in the upcoming quarters, inflation to climb to its 2% target and to increase key interest rates three times in 2018. What we need to remember is that the Fed always forecasts more inflation and more rate hikes than what actually materializes.
So Wall Street’s big temper tantrum today has nothing to do with the Fed. Rather, the political media is continuing to invade the financial media. There’s a big fuss over tariffs on China and Facebook’s data selling. And the media is blowing both out of proportion.
As the market continues sloshing back and forth, however, I recommend you stay on top of your stocks with the help of my Portfolio Grader tool.
Now, when you run your holdings through this screening tool, take note of each stock’s Quantitative Grade (the current level of institutional buying pressure) and each stock’s Fundamental Grade (a weighted blend of eight financial metrics).
Also, check which of your stocks are rated as Conservative, Moderately Aggressive or Aggressive. Shoot to have 60% of your holdings in Conservative stocks, 30% in Moderately Aggressive and 10% in Aggressive. I can’t stress this last point enough because aggressive stocks will be the first ones to take a beating during a correction like we’re seeing right now.