Investors should get ready for market correction
Investors need to brace for a 10% market correction over the next month, as they make sense of the Fed’s stance on interest rates.
The U.S. central bank is forecast to announce it will begin to taper its $120 billion monthly bond purchases on Wednesday, and the real story for the markets is how the Federal Reserve will talk about inflation.
Indeed, inflation is becoming a much bigger issue than most analysts had predicted, so investors will be grappling to fight the trend of elevated prices by starting to hike interest rates.
It’s highly unlikely that the Fed will utilise their previous ‘transitory’ phrase to define the current price surges. Inflation looks to be far stickier than forecast.
As such, they will likely have to raise interest rates quicker and/or more aggressively, so markets are pricing in two or three rate hikes in 2022, which could result in a 5 to 10% market adjustment over the next month.
Of course, all markets are subject to bouts of volatility, and the best way to manage this is to maintain a well-diversified portfolio. A good fund manager will help investors to make the most of the opportunities that stem from volatility and avoid potential risks as and when they happen.
Central banks around the world that initiated massive emergency support to fight the coronavirus crisis are now planning a shift in the other direction.
A potential market correction will be viewed by shrewd investors as the first big step towards a return to normal monetary policy and they will be seeking out the intrinsic opportunities that will arise.