- The Federal Reserve just announced a 0.5% interest rate hike.
- That made investors nervous, and stock values fell because of it.
- Try not to worry about daily market fluctuations, it's the long-term performance that really matters.
Don't panic. If you lost money, you aren't alone.
Americans have been grappling with soaring inflation since the latter part of 2021. And the Federal Reserve is on a mission to do something about it.
To this end, the Fed has implemented multiple interest rate hikes in an effort to slow inflation. The logic is that if interest rate hikes drive the cost of borrowing upward, consumers will start to spend less. And once spending declines, it should narrow the gap between supply and demand that's been causing inflation to surge.
But on Dec. 14, the Fed moved forward with a 0.5% interest rate hike despite recent inflation reports showing a cooling. The Fed also held firm in its stance that interest rate hikes will have to continue until the rate of inflation drops dramatically.
That news didn't sit well with investors. And stock values tumbled on the heels of the Fed's rate hike. So if you just saw your brokerage account balance take a hit, you're certainly not alone.
The stock market is very reactive
There's a reason you'll often hear the stock market referred to as "volatile." Stock values have a tendency to rise and fall to a notable degree in response to different news events.
On Dec. 13, the Bureau of Labor Statistics put out its Consumer Price Index report for November, and it showed that inflation levels were significantly lower last month than in October. That news sent stock values upward. But unfortunately, the Fed's most recent actions have canceled that out.
And none of this is unusual. In fact, it's how stock trading often plays out -- positive news sends stocks soaring, and negative news can cause them to plunge. (There can sometimes be exceptions to this rule, but it's fair to point to it as a general trend.)
It's for this very reason that you shouldn't panic if your portfolio value falls in line with news events. Not only is it natural, but it might also end up being short-lived. Once investors get over the shock of another fairly aggressive interest rate hike, stock values are likely to rise again.
Don't get caught up in day-to-day activity
This isn't the first time stocks have fallen in the wake of negative news, and it most likely won't be the last. And that's why you really shouldn't sweat day-to-day movement in your brokerage account.
As long as you're looking at a long investing horizon, daily rises and drops in your portfolio don't matter. What matters is how your portfolio performs in the long run. And historically, investors who have put money into stocks and held them for many years have been rewarded, even if they encountered their share of dips along the way.
Right now, inflation is a big issue, and we could see more stock market volatility in the coming weeks and months because of it. But your best bet is to try to keep your cool if that impacts your portfolio, and remember that as long as you don't sell off assets while their value is down, you won't actually lose any money.
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