This is a syndicated repost published with the permission of Money Morning. To view original, click here. Opinions herein are not those of the Wall Street Examiner or Lee Adler. Reposting does not imply endorsement. The information presented is for educational or entertainment purposes and is not individual investment advice.
As widely expected, the U.S. Federal Reserve left interest rates unchanged at its September FOMC meeting. And even though the markets rallied after the move, the Fed’s inaction could have a disastrous impact on markets.
In fact, the Fed’s actions could lead us straight to a 2016 stock market crash…
Money Morning Global Credit Strategist Michael Lewitt has been warning investors about the Fed’s policies all year. And he reiterated his position following last week’s meeting…
Will the Fed Create a Stock Market Crash?
“The fact that the Fed is hemming and hawing about raising rates by a miniscule 25 basis points for only the second time in 10 years is proof positive that it not only has no clue what it is doing, but that everything it has done over the previous decades has been destructive to economic growth,” Lewitt said.
At the conclusion of the two-day FOMC meeting on Sept. 21, the Fed said the case for a rate hike has been strengthening. Still, policymakers decided to wait for even more economic growth.
The last time the Fed raised rates was in December 2015. The FOMC lifted its key interest rate from a range of 0% to 0.25% to a range of 0.25% to 0.5%. At the time, the U.S. central bank penciled in four interest rate hikes for 2016.
Immediately following the rate hike, the DJIA fell more than 10% in just six weeks. That prompted new stock market crash fears. Since then, the Fed has not raised rates.
With two more FOMC meetings left in 2016, there is still a chance for a rate hike. I say “a” chance because a hike in November is highly unlikely. The November FOMC meeting takes place the week before one of the most contentious elections in history. Market odds of a rate increase in November are just 8%, according to CME Group’s FedWatch Tool.
The likelihood of a December rate increase is 50-50. But the Fed is extremely adept at coming up with excuses to keep rates steady. With plenty of economic data to sift through before then, policymakers will likely find a few reasons to maintain their lower for longer stance.
Markets have been enjoying the Fed’s ultra-loose monetary measures, Lewitt said. But a day of reckoning is coming. You see, a near decade of near-zero interest rates has artificially inflated asset prices.
And it won’t take much for that bubble to burst. Investors need to be prepared for a potential stock market crash…
“With the S&P 500 trading at its highest level other than 1929 and 2000 (based on the Shiller Cyclically-Adjusted P/E) and other measures, it is vulnerable to any serious disruption of the narrative that has driven it to near record highs,” Lewitt explains.
“It would be prudent to be cautious with your investments until greater certainty emerges,” Lewitt said.
While investors prepare for a possible stock market crash, we’ve detailed the best investment to make to protect yourself from the Fed.
To get full access to all Money Morning content, click here
About Money Morning: Money Morning gives you access to a team of ten market experts with more than 250 years of combined investing experience – for free. Our experts – who have appeared on FOXBusiness, CNBC, NPR, and BloombergTV – deliver daily investing tips and stock picks, provide analysis with actions to take, and answer your biggest market questions. Our goal is to help our millions of e-newsletter subscribers and Moneymorning.com visitors become smarter, more confident investors.
Disclaimer: © 2016 Money Morning and Money Map Press. All Rights Reserved. Protected by copyright of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including the world wide web), of content from this webpage, in whole or in part, is strictly prohibited without the express written permission of Money Morning. 16 W. Madison St. Baltimore, MD, 21201.
The post The Next Stock Market Crash Could Be Caused by the Fed appeared first on Money Morning – We Make Investing Profitable.
Join the conversation and have a little fun at Capitalstool.com. If you are a new visitor to the Stool, please register and join in! To post your observations and charts, and snide, but good-natured, comments, click here to register. Be sure to respond to the confirmation email which is sent instantly. If not in your inbox, check your spam filter.
