Welcome back to the MSI weekly newsletter!
The week that was:
This week, the overall market has shot up due to a few events. First of all, many big companies announced their quarterly results this week. On Wednesday, Google and Microsoft announced their results, both being not as bad as expected, though that is considered a good result in this market environment. The next day, Meta announced very poor results, though following that, Amazon and Apple announced decent(not as bad as expected) results.
However, that was not the main reason the market went up this week. On Wednesday, the results of this month's Fed meeting were released. As expected, interest rates were hiked .75% again. The Fed chairman hinted that inflation might be peaking now, and might even start to go down, and that if this happens, the Fed will no longer need to raise rates so aggressively.
This statement has really excited the market in a positive way. The market is optimistic that the Fed will stop rising interest rates, and by next year, they will even start cutting rates!
However, this is pure optimism, as there are no facts and statistics to back the statement about peaking inflation. The market could end up with a big egg on its face if it turns out that the Fed's statement of inflation peaking is wrong, because of all the market's excitement and optimism. That would be a huge disappointment for the market. The next Fed meeting is in September, but if the inflation data for July shows that inflation is rising even higher, the Fed could once again raise rates by .75%, or even 1%. The market would go senile if that happens.
It could be true that inflation is indeed peaking, though I think that the market should not react strongly based on a person's words. If the market goes up or down, based on the results of a big company, it is understandable. However, the market reacting strongly based on a simple statement could lead to disastrous consequences.
In case the Fed is proven wrong, and inflation is still rising, I plan to raise some cash, so that I can buy some good stocks if that happens. I won't raise too much cash though, so in case the Fed is right, the best stocks that I own will remain untouched.
Thanks for reading my newsletter! Happy investing!