Stocks finished the week higher after the US Federal Reserve elected to leave interest rates unchanged at this week's meeting.
Bonds also made fractional gains on the week.
The Fed hinted that rates will rise in December but they also indicated the decision will be data dependent. Odds of a rate hike in December are now up to 48.5% as you can see from the graphic below from CME. The Fed elected to raise rates in December 2015 and stocks experienced a dramatic selloff of more than -10% in January and February 2016 following the hike. With the election on November 8th and the next Fed meeting on December 14th, the market faces a dicey period in the coming months.
If the Fed does elect to raise rates in December, will we get another market selloff shortly thereafter as we did in January and February? What if Trump wins? What if Hillary wins? Is it time to run for the hills? Traders will try to guess what will happen. They will try to anticipate short term moves and play the inevitable volatility that this uncertainty produces. But we are not traders, we are investors and there is a big difference between the two. I think that one of the biggest mistakes that some investors make is thinking that they always have to do something. I believe that investors should focus on long term goals and hold the course, while letting the traders try to guess what will happen.
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