Fed Rates, Come on Down!

The end of this September marks the end of the fiscal year for most companies. This has also been traditionally the worst month of the year for the market. A good chance for most money managers to regroup after vacations are over to focus on October and the start of the new business year. Yes, this gets reflected in account values, but also it gives a chance for shares and option contracts to be picked up where they can. I am focusing the next few weeks on buying new positions while they are on sale to try and drop our overall cost basis as much as possible. The July carry trade drop in values became a “V Shaped Recovery” for most graphs, this breathe in September is more common. We do have a fed meeting in a little over a week and the consensus is that they will start to lower rates. No one knows by how much but if I had to forecast, I would think it would be 25 basis points (.25%). What does that mean?  Well, if you have any type of loan that is considered a variable rate like a mortgage ARM or most HELOCs, this is good news! If you are looking to make a large purchase soon like a home or land, you are looking good but could stand to wait a little longer for rates to come even further down. Of course, the asking price could change with rates dropping. The reason that lower rates can affect the markets is due to the cost of borrowing. 1) if a large corporation needs to borrow funds, they need rates down just like you and I do. If they borrow 10 million dollars at 8% vs 5% etc. you can see how that would change their bottom line and ultimately dictate some decisions the company can make. 2) even on an individual investor level the rates mean a lot. If someone is using margin to trade and can pay 9% vs 13%, they will probably feel more comfortable in borrowing more which in turn can help money move across the markets which helps spread and growth of prices. Stagnant money doesn’t make money in the macro view of the stock market.

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