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Don’t Day Trade Market News:  How to Invest

Posted by kdadmin on January 27th, 2016.

Don’t Day Trade Market News:  How to Invest

The other day, a client asked me, “Zurich, how do you invest around a Fed meeting announcement? Do you buy in the morning, sell at the announcement? How do you trade such a thing?”

“Oh,” I said, “the answer is simple …”

Don’t Day Trade Market News.

I don’t day trade market news.

Honestly, if the research firms to whom I pay a pretty penny, can’t keep me well enough appraised of likely FOMC (Federal Open Market Committee) policy changes a long way in advance, they’re not doing their job. Further, FOMC policy changes are dependent upon broader economic factors. Data for things like oil prices, global economic strength, inflation, unemployment, et cetera, are widely available BEFORE an FOMC meeting. By staying abreast of this information, and studying the commentary from my research firms, I am usually able to make long range investment decisions before events like the FOMC meeting.

Decision vs Action.

However, just because I make a decision, doesn’t mean that I take action. You saw that in my article, How to Invest in 2016: Panic or Profit. In that case, I made my decision about my investment strategy for 2016 (read my article, How to Invest in 2016: Cash is King) on December 31, 2015. So, when SPY prices dropped enough, I bought in. If they tank enough again, I’ll buy in again.

Markets tend to be incredibly, and irrationally, volatile around, and about, FOMC policy meeting announcements. This is how the market works. Further, markets tend to do exactly the opposite, or not, of economic theory prescribes around these major news events. It’s a crap shoot. I value my clients’ money more than that.

Today’s FOMC Meeting.

If you are NOT technically minded, you can skip down to The Picture. For you technically minded folks, expectations for today’s 2pm EST announcement are listed below. (Parts of this were excerpted from Macroeconomic Advisers Pre-FOMC Briefing held on 1/25/16.)

  1. Economic Conditions Review:
    1. Q4 data was weaker than expected
    2. China continues to be a problem
    3. The oil oversupplycontinues to rock markets andglobal economies
    4. The dollar continues to strengthen, whichundermines inflation.
    5. The ECB (European Central Bank) has hinted at additional stimulus in March.
    6. Inflation continues to lag expectations and the FOMC’s target of 2%.
    7. Lower energy prices continue to boost consumer expenditure.
    8. Housing is recovering.
    9. Unemploymentcontinues to drop as job growth remains strong.
  2. Likely Results:
    1. No change in Federal Funds Rate
    2. FOMC continues with the “gradual” pace of tightening party line.
    3. The stock market would prefer a more gradual pace of tightening. In other words, no rate hike in March, maybe put the next one off until September (unlikely). June is more likely.

The Picture.

As a child who loved to ski, I dreamt of the day that I would be able to ski all winter and all summer. So, to honor this childhood dream I took this photo above from the top of Mount Hood on August 8, 2010.

Everywhere I go, I witness how nature nicely summarize complex economic principles in one view. Take this one. I think it nicely sums up how the market anticipates each FOMC meeting. Or, each major bit of news. Every investor wants to get to that distant peak. But without clarity, the amateur investor is likely to get lost in the fog; with disastrous results.

Finding a professional, who knows the terrain, and has a good map, can significantly improve the amateur investor’s chances of success.

Would you like to see more along these lines? Check out my video, How to Live the Life You Love, Your First Five Steps. Then checkout my video gallery here.

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