Investors should be prepared for the market correction


Investors should prepare for a 10% market correction in the coming month as they understand the Federal Reserve’s stance on interest rates.

The US central bank is due to announce on Wednesday that it will start cutting its monthly bond purchases by $120 billion, and the real story for the markets is how the Fed will talk about inflation.

Inflation is becoming a much bigger issue than most analysts expected, so investors will focus on fighting the upward price trend by starting to raise interest rates.

It is highly unlikely that the Federal Reserve will use its previous term “transitional” to describe current price spikes. Inflation appears to be much more rigid than expected.

As a result, they will likely need to raise interest rates faster and/or more aggressively, so markets are pricing in two or three rate hikes next year, which could cause the market to adjust by 5 to 10% over the next month.

Naturally, all markets are subject to bouts of volatility, and the best way to manage this is with a well-diversified portfolio. A good fund manager will help investors take advantage of volatility-related opportunities and mitigate potential risks as they arise.

Global central banks that have put in place massive emergency support to fight the pandemic are now planning to take a move the other way.

A potential market correction will be seen by sophisticated investors as the first major step towards a return to normal monetary policy and they will be on the lookout for inherent opportunities as they arise.

Nigel Green is CEO and Founder of deVere Group, one of the world’s largest independent financial advisory and fintech organizations.

Photo: QuoteInspector.

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