How Can One Navigate Through Market
Turbulence and Extreme Volatility?
In the past year, we have encountered substantial swings in the financial markets. As the U.S. economy strengthened in the beginning of 2018, the U.S. Federal Reserve (the Fed) took a hawkish stance on its interest rate policy. The interest rate policy does not directly affect equity markets but has an important ripple effect that eventually dictates the direction of stock prices. Businesses usually borrow money from banks as one of the ways to finance their operations. An increase in interest rates makes borrowing more expensive for firms. Accordingly, companies may not be spending as much on expansion plans or new business ventures, which curtails growth. This could potentially lead unsatisfied investors to sell the company stock, adversely affecting its share price.