Another 75 Point Fed Hike What's Next
Today the fed increased rates yet again and for some reason to most 75 points was already expected and many feel the price has already been factored in. This false feeling will soon catch up with us as the economy starts to slow down even further. In this article I break down what sectors are most likely to be hurt by this and one ones you can come out on top with.
Overall this is an attempt to slow the already slow economy of overpriced everything and bring inflation back down to a reasonable level which is around the 3% rate or lower. Failure of this results in the fed taking action and wages increasing (which often lags heavily).
*This article is for entertainment purposes only and is not financial advice. Do your own research before investing.
What Gets Hurt
Real estate will take the biggest hit of this slow down. Granted a majority of the USA value and income comes from real estate. However rentals, mortgages and stocks related to this things will most likely remain the same if not benefit from these moves. This is because a higher interest rate on these loans now means more profits to the company. Rising rental prices because most cases many are still on mortgages could also see a increase in value as people will most likely cut back on other things before they cut back on the house they live in.
REITs depending on the sector could benefit greatly from this increasing stock value prices and potentially increasing the dividend yields on those stocks (if you grab them up soon enough). For example there are a number of REITs I own and the stock prices have been slammed over the last two years. However buying up more of these REITs when they got hammered during the initial lockdown period has changes my dividend from what's shown on paper right now of 8%-11% to nearly 15% for me because of the dollar cost averaging price of the stocks when I bought them lower.
The little bit of increase in the stock market today defies logic but is understandable in the way most people now trade these days. With easier access than ever for each person to invest through apps like Robinhood it's hard to predict movements based on past cases like this. What we do know is that things will slow down, prices will soften and jobs will be lost. We have already been seeing a bit of this from the last rate hike.
Two upcoming factors to look at will be of course inflation rates over the next two months to see if they are coming down and that will set us up for the possibility of how high of a rate hike in September.
Possible Plays
Do you have a loan? WELL GET RID TO A FIXED RATE asap!
A fixed rate loan will lock in your rate of interest on your loan while holding on to a variable will increase the rate at which you have to pay back.
For example if you are currently paying $600,000 mortgage at a 3% rate you'd be paying $2,530/month however if you got the same loan or you are on a variable interest rate loan that loan would now cost you $3,400/month at the 5% interest rate we are currently seeing. However with this next rate hike we could see 6%-7% which means that same loan that used to cost you $2,530 a month would now almost double to nearly $4,000/month. You can start to quickly see what this stagnates things and people stop borrowing money or things just collapse.
Recession?
If you look at it on paper we are currently in a recession however no one wants to officially say it because well that would look even worse to the world and for elections so shhhhh on that right? lol Politics I hate them but still follow it because it effects investments. The winners out of this are actully everyone as prices have been inflated to crazy high numbers and we still need to pay the price for a world wide lockdown. However the blow should be pretty soft and to be honest I see it ending this year but it's going to come with a heavy shock factor before the year is up.
What are you thoughts on the direction of Stocks, Real estate and Crypto?