September Review - The Fed Blinks

The September meeting at the Federal Reserve was eagerly anticipated by analysts, economists, and short-term investors because there was the real possibility that central bankers would finally boost the fed funds rate for the first time in almost 10 years.

In case you missed it, the Fed chose not to raise rates in September, but left open the possibility we might see an October or December move. At the press conference that followed the Fed’s decision, Fed Chief Janet Yellen said the economy “has been performing well and impressing us by the pace at which it is creating jobs…” Still, that wasn’t enough for the Fed to pull the trigger.

Instead, worries about what’s happening in China and emerging markets were the primary reason the Fed chose to stay on hold.  In recent days the jobs report came out and did not look very good at all, giving most people the expectation that the Fed may not raise them now this year.  This made for a nice recovery off of a big decline last Monday (currently up about 5% off of those lows this past week), but doesn’t paint a great picture for the current US economy.  Click here to read more insight on the current outlook.

While I believe it is important to monitor various economic indicators and events that have the potential to impact various asset classes, it’s also important to filter out “the noise” that only the shortest-term traders might find of value.

Perspective

In other words, let’s put the last Fed meeting into perspective. Will it really matter one year, or five years, or 10 years from now that the Fed chose to raise or not raise interest rates at the September 2015 meeting? It won’t.

It’s the long-term that really matters, not the day-to-day or month-to-month gyrations in the market.

While rollercoaster rides can be fun for some (think the short-term or day trader) and unsettling for others, a more mundane approach is usually the best.

As the influential economist Paul Samuelson once said, “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” It’s why I counsel that it is sometimes best to skip the financial news channels that focus on the ever-changing crisis of the month.

If we properly understand your tolerance for risk, then even those volatile days won’t be very unsettling.

Market Performance through 9-30-15

MTD* %YTD %3-year** %

Dow Jones Industrial Average-1.47-8.63+6.62

NASDAQ Composite-3.67-2.45+14.03

S&P 500 Index-2.64-6.74+10.05

Russell 2000 Index-5.07-8.63+9.54

MSCI World ex-USA***-5.29-8.69+1.90

MSCI Emerging Markets***-3.26-17.18-7.56

Source: Wall Street Journal, MSCI.com, Horsesmouth October client letter

*August 31, 2015 – September 30, 2015

**Annualized