Is it finally a firm trend of disinflation?

Today is an interesting day in the US financial market. It’s like a breath of relief or a long-waited rain on a drought. 😊 The Federal reserve still raised the short-term interest rate by 0.25%, but this is a slowing trend. The hikes were 0.50% last time and 0.75% prior. Therefore, the financial market is reacting strong and fast positively. Nasdaq was up 2%. TLT, long US Treasury bond ETF up by 1.2%, even the Canadian Federal government long bond ETF was up by 0.71%. Usually, bond prices increase when interest rates decrease. However, I guessed this might be driven from a belief that the interest rate hike might not last long.

The key wording in the Fed statement is “inflation has eased somewhat but remains elevated”. This sounds like music to the ears of many investors. It is long time coming. The tightening monetary policy push many Tech stock prices down and greatly reduced their funding since money is so much more expensive now. This led to a wide-spread of lay-off in tech that we haven’t seen for a long time.

Many investing in tech are waiting for it to turn around either to take profit or diversify. Many investing heavily in tech in the past decade and did very well. Many people in their 20s or 30s probably have majority of their investment in tech stocks and saw their portfolio values dropped by almost 30% last year. I think this can be a blessing in disguise. Since they are young, they still have time to recover if they invest for retirement. If they didn’t sell the tech stocks or ETF at the low-price points, then the loss was not realized. The Nasdaq was up by more than 10% since the beginning of this year already.  This inflation and interest rate hike period will teach us a very valuable less which is to diversify, diversify, diversify.

If anyone invest heavily in Oil or Financials sectors in the past 2 years because of the stellar stock performance, please do take note. Do not put all eggs in one basket because that basket looks very shiny at this moment.

Take some profits and buy other sector stocks or ETF or different type of assets completely. It is always very fortunate that we can still have the opportunity learn and correct our mistakes.