Investors should brace for a 10% market correction over the next month as they attempt to decipher the Federal Reserve’s interest rate thinking, according to deVere Group CEO Nigel Green.
The prognosis comes as the Federal Reserve is generally expected to begin unwinding its $120 billion monthly bond purchases on Wednesday.
“While Fed Chair Jay Powell will discuss tapering the enormous bond-buying program, the real story for the markets will be how the Fed, the world’s de facto central bank, will discuss inflation,” Green says.
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“Inflation is accelerating and has become a more serious problem than most observers anticipated.
“As such, investors will be looking for clues about how the Fed intends to combat the trend toward higher prices by initiating rate hikes.”
“It is highly improbable that the central bank will now use the term ‘transitory’ to characterize the current price rises,” he continues. Inflation appears to be more stubborn than they anticipated.
“This indicates that they will almost certainly have to raise interest rates sooner and/or more aggressively than previously anticipated.
“As a result, markets are aggressively pricing in two or three hikes next year, which might result in a 5 to 10% market correction in the coming month.”
By definition, all markets have periods of volatility. How are we to deal with this? It is virtually commonly understood that a well-diversified portfolio and an experienced fund manager will enable investors to take advantage of the opportunities presented by volatility while avoiding potential risks as they arise.
“Central banks who began massive emergency support last year to combat the epidemic are now preparing a 180 degree reversal in the opposite way,” the deVere CEO concluded.
“Savvy investors will view a market downturn as the first significant step toward the likely restoration to normal monetary policy, and they will seek out the inherent opportunities that will show themselves.”
