Why You Shouldn’t Be Scared of a Fed Hike Today
If you’ve been ingesting any sort of financial news for the past two weeks, you’ve no doubt heard the Federal Reserve is making an announcement today. That announcement will be their decision regarding whether they’re going to hike interest rates or leave them unchanged.
Nearly every pundit interviewed on CNBC or Bloomberg has had some sort of answer to the questions of whether or not they thought the Fed would indeed hike and what that impact for the market could be. When I woke up today though, to share my thoughts on the event and its’ outcome here, I was pleasantly surprised to see one of the better-known ‘gurus’ actually shared my thoughts…AND did some math for me.
Consequences Of A Fed Hike Today
Mark Hulbert, a senior columnist at MarketWatch, (who I tend to usually disagree with) wrote an op-ed piece called “Here’s how to make easy money off the Fed interest-rate decision“.
I’d recommend skimming the article, but one of the most important points he makes is some simple math regarding the hike and $AAPL.
If the Fed on Wednesday raises the fed-funds rate by a quarter point to 1.25%, and makes no other rate changes for the next five years, the present value of Apple’s next five years’ EPS comes to $51.05 in today’s dollars. In contrast, this total would be $51.40 if the Fed instead keeps them at the current level of 1.0% for the next five years.
In other words, the difference between an immediate rate hike and an indefinite postponement comes to 35 cents of total five-year EPS. The impact of other adjustments is even smaller. It’s hard to see how any of these possibilities makes any significant difference.
The bottom-line? If they don’t hike the markets will be fine…and if they hike the market will still be fine. If anything…they might hike and cause a small dip in the market…which will most likely reverse towards the end of the day or tomorrow.
So relax; don’t panic or you’ll make some stupid trades.
Keep tuned to my StockTwits during the day for commentary and updates.