The Fed Issued A Bleak Update

The Fed Issued A Bleak Update

over 3 years ago2 mins

An update from the Federal Reserve (the Fed) seemed to take the wind right out of investors’ sails this week, and they jumped ship from global stocks on Thursday ⛵️

What does this mean?

The Fed said it was too early to leap to conclusions based on a few positive economic data points, and admitted it expects the US economy to shrink by 6.5% this year (so much for that “V-shaped” recovery). And while the central bank is expecting economic growth to rebound next year, the Fed doesn’t think it’ll increase interest rates until at least 2022.

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And there’s something else in the corner of investors’ eyes: coronavirus cases have started rising again in a few US states as stay-home orders begin to lift, which – short of a decent track-and-trace system – could trigger more infections, renewed lockdowns, and a delayed economic recovery 🦠

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Why should I care?

The stock market isn’t the economy, we wrote on Wednesday. But if the economy doesn’t recover as quickly as predicted – or grinds to a halt all over again – it’ll be the stock market that feels the pain. That’s because companies will likely earn less than expected in a downturn, and investors will adjust their company forecasts accordingly 📉 And when they do, they might end up selling shares either in anticipation that a company’s earnings are going to fall, or – if the news comes as a surprise – after the fact.

With investors everywhere not sure if they’re coming or going, “dollar-cost averaging” could be a good choice for Finimizers 🤔 By investing a set amount regularly, you’ll end up paying the average price for stocks over a period of time rather than on any one day – and get more bang for your buck when prices drop. And since stock prices tend to rise in the long run, odds are you’ll end up bagging yourself a profit.

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