{"id":3043,"date":"2018-02-14T05:30:51","date_gmt":"2018-02-14T05:30:51","guid":{"rendered":"https:\/\/raizinvest.com.au\/investors\/how-interest-rates-can-affect-volatility\/"},"modified":"2021-02-08T04:36:07","modified_gmt":"2021-02-08T04:36:07","slug":"how-interest-rates-can-affect-volatility","status":"publish","type":"post","link":"https:\/\/raizinvest.com.au\/investors\/blog\/how-interest-rates-can-affect-volatility\/","title":{"rendered":"How Interest Rates can Affect Volatility"},"content":{"rendered":"
\"image\"<\/figure>\n

After a strong rise in the US market over the last 6 months (nearly 7% in
\nJanuary alone), investors have been caught by surprise due to the strength of
\nrecent inflation reports (yep the US economy is doing well), and therefore
\nincreased speculation that the US Fed could raise interest rates more
\naggressively than had been expected. This is the catalyst for the recent
\nfall.<\/p>\n

So
\nwhy does the rise in interest rates affect equity markets?<\/p>\n

 <\/p>\n

Company
\nearnings & consumer spending<\/h3>\n

Equity
\ninvestors see increasing inflation as an indication that interest rates may
\npush higher, which could lead to a slow down in company earnings and
\nconsumer-spending power. As both companies and consumers may need to pay back
\nmore on any debts they hold as interest rates increases, rising interests rates
\nmay eventually in a year or two slow down the economy and help to balance
\ngrowing inflation. Equity markets take this into consideration when valuing
\nequities, looking this far into the future.<\/p>\n

At
\nthe moment though, the fear of rising interest rates in the market is on the
\nback of expected improvements in the global economy. News on the global economy
\nlooks set to remain positive in the coming months.<\/p>\n

 <\/p>\n

Profit
\ntaking<\/h3>\n

Prior
\nto this sell-off, the US market had not fallen 3 percent from any high in more
\nthan a year. Therefore, investors are also seeing this as a catalyst to start
\nsome profit taking. This is usual market action and usually referred to as a
\ncorrection or pull back.<\/p>\n

 <\/p>\n

Market
\nCycles<\/h3>\n

Despite
\nthe recent fall, the U.S. stock market has proven remarkably resilient; it
\nroutinely has recovered from these short-term events to move higher over longer
\ntime periods. This is not to say it will always recover but history shows by
\nstaying invested no matter the market conditions, investors can keep their
\nportfolios on track in pursuit of their long-term goals. These market cycles
\nare completely normal, and has still been up over the long-term picture.<\/p>\n

 <\/p>\n

\"image\"<\/figure>\n

US Markets have pulled
\nback to November pricing, but is still up over the long-term picture.<\/i><\/p>\n

 <\/p>\n

Why
\ndoes this affect Australian Markets?<\/h3>\n

They
\nsay\u00a0\u201cWhen the US market sneezes, the rest of the world catches a cold.\u201d<\/i><\/p>\n

As
\nthe US is the world\u2019s biggest economy (for now), good market news from the US
\nis usually good market news for markets globally, including Australia. Bad news
\nfrom the US also signals vis versa across global markets. A change in the US
\neconomy usually has a global effect in most other economies affecting
\nbusinesses, import\/export trades and currencies.<\/p>\n

The
\nAustralian Stock Exchange (ASX) is typically correlated to the US stock market.
\nYou will notice that the opening level of the ASX is often influenced by what
\nthe US markets did the previous night. Another consideration is that a large
\nmajority of Australian shares are also owned outside of Australia.<\/p>\n

However,
\nwhile we expect Australian markets to follow US market movements, we don\u2019t
\nexpect them to fall as much the US markets as they have not risen over the last
\nfew months as quickly. While US markets will continue to influence our market,
\nit will still eventually move independently based on both global and local
\neconomical factors closer to home.<\/p>\n

Please
\nremember markets go up and markets go down. This is completely normal. The Raiz
\nphilosophy is to invest small amounts regularly, no matter the market
\nconditions. Stick to your savings plan and these moments could be an
\nopportunity. You can learn more about this from our blog on the advantages of Dollar Cost Averaging here.<\/a>\u00a0For more information on Raiz fees, click here<\/span>.<\/a><\/p>\n

\n

 <\/p>\n

Don\u2019t have the Raiz App?<\/h3>\n

Download it for free in the App store or the Webapp below:<\/p>\n

\n
\"download-raiz-app\"<\/a>
Click to download the Raiz app<\/a><\/figcaption><\/figure>\n

 <\/figure>\n

Important Information<\/strong><\/span><\/em><\/p>\n

The information on this website is general advice only. This means it does not take into account any person\u2019s particular investment objectives, financial situation or investment needs. If you are an investor, you should consult your licensed adviser before acting on any information contained in this article to fully understand the benefits and risk associated with the product.<\/em><\/p>\n

A Product Disclosure Statement for Raiz Invest and\/or Raiz Invest Super are available on the Raiz Invest website and App. A person must read and consider the Product Disclosure Statement in deciding whether, or not, to acquire and continue to hold interests in the product. The risks of investing in this product are fully set out in the Product Disclosure Statement and include the risks that would ordinarily apply to investing.<\/em><\/p>\n

The information may be based on assumptions or market conditions which change without notice. This could impact the accuracy of the information.<\/em><\/p>\n

Under no circumstances is the information to be used by, or presented to, a person for the purposes of deciding about investing in Raiz Invest or Raiz Invest Super.<\/em><\/p>\n

Past return performance of the Raiz products should not be relied on for making a decision to invest in a Raiz product and is not a good predictor of future performance.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

After a strong rise in the US market over the last 6 months (nearly 7% in January alone), investors have been caught by surprise due to the strength of recent inflation reports (yep the US economy is doing well), and therefore increased speculation that the US Fed could raise interest rates more aggressively than had […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false},"categories":[1],"tags":[306,59,63],"yst_prominent_words":[293,98,298,297,291,288,224,245,294,289,295,292,290,97,82,117,166,125,239,296]}